Armstrong Helmet Company

THE BUSINESS SITUATION

Armstrong Helmet Company manufactures a unique model of bicycle helmet.

The company began operations December 1, 2011. Its accountant quit the second week of operations, and the company is searching for a replacement. The

company has decided to test the knowledge and ability of all candidates interviewing for the position. Each candidate will be provided with the information

below and then asked to prepare a series of reports, schedules, budgets, and recommendations based on that information. The information provided to each

candidate is as follows.

Cost Items and Account Balances

Administrative salaries $15,500

Advertising for helmets 11,000

Cash, December 1 –0–

Depreciation on factory building 1,500

Depreciation on office equipment 800

Insurance on factory building 1,500

Miscellaneous expenses—factory 1,000

Office supplies expense 300

Professional fees 500

Property taxes on factory building 400

Raw materials used 70,000

Rent on production equipment 6,000

Research and development 10,000

Sales commissions 40,000

Utility costs—factory 900

Wages—factory 70,000

Work in process, December 1 –0–

Work in process, December 31 –0–

Raw materials inventory, December 1 –0–

Raw materials inventory, December 31 –0–

Raw material purchases 70,000

Finished goods inventory, December 1 –0–

case 7

CA-27

Armstrong Helmet Company

Developed by Dick Wasson, Southwestern CollegeProduction and Sales Data

Number of helmets produced 10,000

Expected sales in units for December

($40 unit sales price) 8,000

Expected sales in units for January 10,000

Desired ending inventory 20% of next month’s sales

Direct materials per finished unit 1 kilogram

Direct materials cost $7 per kilogram

Direct labor hours per unit .35

Direct labor hourly rate $20

Cash Flow Data

Cash collections from customers: 75% in month of sale and 25% the following month.

Cash payments to suppliers: 75% in month of purchase and 25% the following month.

Income...