2.

1 Cost Volume Profit Analysis

1.1. Cost of Goods Manufactured Schedule
Armstrong Helmet Company Cost of Goods Manufactured Schedule For the Month Ended December 31st, 2014 Work in process, Dec 1 Direct Materials Raw Materials Inventory Dec 1 Raw Materials Purchases Total raw materials available for use Less: Raw materials inventory, Dec 31 Direct Materials Used $ $ $ 70,000.00 $ 70,000.00 $ $ 70,000.00 $ 70,000.00 -

Direct Labour Manufacturing Overhead Depreciation Factory Building Insurance on Factory Building Miscellaneous Expenses Factory Property Taxes Factory Building Rent on Production Equipment Utility Costs - Factory Total Manufacturing Overhead Total Manufacturing Costs Total cost of work in process Less: Work in Process, Dec 31 Cost of goods manufactured $ 1,500.00 $ 1,500.00 $ 1,000.00 $ 400.00 $ 6,000.00 $ 900.00

$ 11,300.00 $ 151,300.00 0.00 0 $ 151,300.00

1.2.
Item Raw Materials

Variable and Fixed Costs

Variable Costs $70,000.00 $11,000 $15,500 $1,500 $800 $1,500 $ 1,000.00 $300 $500 $400 $6,000 $10,000 $40,000.00 $900 $70,000.00 $ 181,000.00 Fixed Costs Total Costs

Advertising for helmets Administrative Salaries Depreciation Factory Building Depreciation Office Equipment Insurance on Factory Building Miscellaneous Expenses Factory Office Supplies Expense Professional Fees Property Taxes Factory Building Rent on Production Equipment Research & Development Sales Commission Utility Costs - Factory Wages Factory

$48,400

$ 229,400.00

4) $15.13 per helmet (Total Units Produced 10,000/ Total Manufacturing Cost 151,300) 5) Armstrong Helmet Company is probably using the Process costing. This is due to the fact that the company is producing unique product in a massive quantity. This is compared to the definition of the Process costing which states that; Process costing is used to apply cost to similar products that are mass produced in a continuous fashion. 6) The Armstrong might use the different cost accounting system if : a) It allocates overhead to multiple activity cost pools and assign the activity cost pool to products or services by means of cost drivers or, b) If costs are assign to each job or batch i.e. each job or batch has its own distinguish characteristic.

7) Variable cost per helmet is $18.10 (181000/10000)

8) Contribution margin $21.90 and contribution margin ratio 54.75%

9) $40Q = $18.10Q + $48400 $40 Q $18.10Q = $48400 $21.90Q = $48400 Q = 2210 units needed to break-even Q = sales volume in units, $40 = selling price, $18.10 variable cost per unit, $48400 fixed cost per unit 2210 * $40 = $88400 break-even sales dollars

2.2 Budgets
Armstrong Helmet Company Sales Budget For the Month Ending December 31st Expected unit sales Unit Selling Price Total Sales Armstrong Helmet Company Production Budget For the Month Ending December 31st 2013 Expected unit sales Add: Desired ending finished goods Total required units Less Beg. Finished Goods Inventory Required production units Armstrong Helmet Company Direct Materials Budget For the Month Ending December 31st 2013 Units to be produced Direct materials per unit Total kilo's needed for production Add: Desired ending direct materials Total materials required Less: Beg. Direct materials Direct materials purchased Cost per pound Total cost of direct materials purchases 10,000 X 1kg 10,000 0 10,000 0 10,000 $7 $70,000 8,000 2,000 10,000 0 10,000 December 8000.00 $40.00 $320,000.00

Armstrong Helmet Company Direct Labour For the Month Ending December 31st 2013 Units to be produced Direct labour time (hours) per unit Total received direct labour hours Direct labour cost per hour Total direct labour cost
Armstrong Helmets Company Selling and Administration Expense Budget For the Year Ending December 31, 2013

10,000 x.35 3,500 x20 70,000

Budgeted sales in units Variable Expenses Sales commission Total variable expenses Fixed Expenses Advertising Administrative salaries Depreciation - office equipment Office supplies expenses Professional fees Research and development Property taxes - Factory building Total fixed expenses Total selling and administrative expenses

8000

40,000 40,000

11,000 15,500 800 300 500 10,000 400 38,500 78,500

Armstrong Helmets Company Cash Budget For the Year Ending December 31, 2013 Beginning cash balance Add: Receipts Collections from customers Total recceipts Total available cash Less: Disbursments Direct Materials Direct Labour Manufacturing Overhead (less depreciation - $1500) Selling and administrative expenses (less depreciation - $800) Inccome tax expense $40,590 Purchase of equipment Total disbursments Excess (deficiency) of avaliable cash over cash dispursments Financing Borrowings Ending cash balance Armstrong Helmets Company Budgeted Income Statement for the month ended 31, December 2013 Sales (8000 units @ $40) Cost of Goods Sold (8000 units @ $15) Gross Profit Selling and Administration expense Income before income tax expense Income tax expense (45%) Net income $320,000 $120,000 $200,000 $78,500 $121,500 $54,675 $66,825 $0

$240,000 $240,000 $240,000 $52,500 $70,000 $9,800 $77,700 54675 $720,000 $984,675 -$744,675 $774,675 $30,000

FLEXIBLE BUDGET
Armstrong Helmets Company Selling Expense Budget Report (Flexible) For the Month Ending December 31, 2013
Sales in units Variable Expenses 8,000 $32,000 10,000 $40,000 $70,000 $1,000 $70,000 $181,000 $11,000 $15,500 $1,500 $800 $1,500 $300 $500 $400 $6,000 $10,000 $900 $48,400 $229,400 1000 $4000 $7000 $100 $7000 $18100 $11,000 $15,500 $1,500 $800 $1,500 $300 $500 $400 $6,000 $10,000 $900 $48,400 $66,500

Sales commission ($4) Direct Material ($7)

Miscellaneous Expenses - Factory ($0.10) Wages Factory ($7)

$56,000 $80 $56,000 $144,080

$11,000 $15,500 $1,500 $800 $1,500 $300 $500 $400 $6,000 $10,000 $900 $48,400 $192,480

Total variable expenses Fixed Expenses

Advertising for helmets Administrative Salaries Depreciation Factory Building Depreciation Office Equipment Insurance on Factory Building Office Supplies Expense Professional Fees Property Taxes Factory Building Rent on Production Equipment Research & Development Utility Costs - Factory Total Fixed expenses Total Cost = VC+FC

2.3 Incremental Analysis

Incremental Analysis Net Sales Cost of goods sold Gross Profit Less operating expenses Administrative (Old=180,000x5) (New= 180,000x1.1x5) Retain 6,000,000 4,500,000 1,500,000 500000 Replace 6,600,000 4,620,000 1,980,000 565000

Selling Administrative (100,000x5=Old) (113000x5) Purchase (New equipment) Total expenses Net Income (Gross profit-Total Expenses)

900,000 1,400,000 100,000

990,000 150,000 1,705,000 275,000

RECONMENDATION Since the New Equipment will be Earning More profit of $275,000 then the old Equipment of $100,000 It is therefore recommended for the Managing Director of the Navula Company to Replace the Old Equipment with the New Equipment.