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Computing the unit contribution margin and the contribution margin ratio.
Armstrong Helmet Company manufactures a unique model of bicycle helmet. The company began operations December 1, 2006. 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:
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
Miscellaneous expense - 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
Work in progress, December 1
Work in progress, December 31
Raw materials inventory, December 31
Raw materials purchases
Finished goods inventory, December 1
Production and sales data
Number of helmets produced
Expected sales in units for December ($40 unit sales price)
8,000
Expected sales in units for January
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
0.35
Direct labor hourly rate
$20
Cash flow data Cash collections from customers: 75% in month of sale & 25% the following month. Cash payments to suppliers: 75% in month of purchase & 25% the following month. Income tax rate: 45%. Cost of proposed production equipment: $720,000. Manufacturing overhead and selling & admin costs are paid as incurred. Desired ending cash balance: $30,000.
Using the data presented above, do the following: Compute the unit contribution margin and the contribution margin ratio.
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