Final Paper Complete: The Comprehensive Problem CP26 ✓ Solved

Final Paper Complete The Comprehensive Problem Cp26 At The End Of Ch

Complete the Comprehensive Problem CP26 at the end of Chapter 26 (covers chapters 19-26). Be sure the assignment is complete – parts a-q, with properly citations and reference page. You would like to start a business manufacturing a unique model of bicycle helmet. In preparation for an interview with the bank to discuss your financing needs, you need to provide the following information. A number of assumptions are required; clearly note all assumptions that you make.

Instructions (a) Identify the types of costs that would likely be involved in making this product. (b) Set up five columns as indicated. Product Costs Item Direct Materials Direct Labor Manufacturing Overhead Period Costs Classify the costs you identified in (a) into the manufacturing cost classifications of product costs (direct materials, direct labor, and manufacturing overhead) and period costs. (c) Assign hypothetical monthly dollar figures to the costs you identified in (a) and (b). (d) Assume you have no raw materials or work in process beginning or ending inventories. Prepare a projected cost of goods manufactured schedule for the first month of operations. (e) Project the number of helmets you expect to produce the first month of operations. Compute the cost to produce one bicycle helmet. Review the result to ensure it is reasonable; if not, return to part (c) and adjust the monthly dollar figures you assigned accordingly. (f) What type of cost accounting system will you likely use—job order or process costing? (g) Explain how you would assign costs in either the job order or process costing system you plan to use. (h) Classify your costs as either variable or fixed costs. For simplicity, assign all costs to either variable or fixed, assuming there are no mixed costs, using the format shown. Item Variable Costs Fixed Costs Total Costs (i) Compute the unit variable cost, using the production number you determined in (e). (j) Project the number of helmets you anticipate selling the first month of operations. Set a unit selling price, and compute both the contribution margin per unit and the contribution margin ratio. (k) Determine your break-even point in dollars and in units. (l) Prepare projected operating budgets (sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expense, and income statement). You will need to make assumptions for each of the following: Direct materials budget: Quantity of direct materials required to produce one helmet; cost per unit of quantity; desired ending direct materials (assume none). Direct labor budget: Direct labor time required per helmet; direct labor cost per hour. Budgeted income statement: Income tax expense is 45% of income from operations. (m) Prepare a cash budget for the month. Assume the percentage of sales that will be collected from customers is 75%, and the percentage of direct materials that will be paid in the current month is 75%. (n) Determine a relevant range of activity, using the number of helmets produced as your activity index. Recast your manufacturing overhead budget into a flexible monthly budget for two additional activity levels. (o) Identify one potential cause of materials, direct labor, and manufacturing overhead variances for your product. (p) Assume that you wish to purchase production equipment that costs $720,000. Determine the cash payback period, utilizing the monthly cash flow that you computed in part (m) multiplied by 12 months (for simplicity). (q) Identify any nonfinancial factors that should be considered before commencing your business venture.

Sample Paper For Above instruction

Starting a manufacturing business of a specialized bicycle helmet involves comprehensive planning and detailed financial analysis. This paper addresses key aspects including cost identification, budgeting, costing systems, and other critical considerations essential for successfully launching the venture.

Cost Identification and Classification

The primary costs involved in producing bicycle helmets include direct materials, direct labor, manufacturing overhead, and period costs. Direct materials encompass the plastic shells, foam padding, straps, and decorative elements used in each helmet. Direct labor involves the wages paid to workers assembling the helmets, including cutting, molding, and assembly processes. Manufacturing overhead covers factory rent, utilities, depreciation of equipment, and other indirect costs associated with production. Period costs, including administrative expenses, marketing, and distribution, are not directly tied to manufacturing but necessary for business operations.

Cost Allocation and Hypothetical Figures

Suppose the monthly costs are as follows: direct materials costing $25,000; direct labor totaling $15,000; manufacturing overhead at $10,000; and administrative expenses at $5,000. Assuming no beginning or ending inventories, the projected cost of goods manufactured (COGM) for the first month is calculated as the sum of direct materials used, direct labor, and manufacturing overhead, totaling $50,000. This budget facilitates understanding of per-unit costs and overall profitability.

Production Planning and Cost Calculation

Anticipating the production of 2,000 helmets in the first month, the cost per helmet is derived by dividing total manufacturing costs ($50,000) by the production volume, resulting in a unit cost of $25. This figure is reasonable considering material and labor costs and provides a basis for pricing strategies.

Costing System Choice and Cost Assignment

A process costing system is most appropriate given the continuous, homogeneous nature of helmet production. Costs are assigned evenly across units produced, with direct materials, labor, and overhead allocated proportionally. Costs are classified as variable or fixed; for example, direct materials and labor are variable, directly affected by production volume, whereas rent and depreciation are fixed.

Cost Analysis and Pricing Strategies

The unit variable cost of $20 ($10 for materials and $10 for labor) informs pricing decisions. Assuming a selling price of $50 per helmet, the contribution margin per unit is $30, with a contribution margin ratio of 60%. The break-even point is calculated based on total fixed costs divided by the contribution margin per unit, indicating the sales volume needed to cover all expenses.

Budgeting and Financial Projections

Projected operating budgets include detailed estimations of sales, production, and expenses. For instance, the direct materials budget accounts for required quantities and costs, while the income statement incorporates assumptions such as a 45% income tax rate. A cash budget forecasts collections and payments, considering 75% of sales collections in the current month and 75% of direct material costs paid immediately.

Flexible Budgeting and Variance Analysis

The relevant activity range is from 1,500 to 2,500 helmets, with flexible budgets adjusted accordingly. Variance analysis helps identify the causes of deviations, such as material price fluctuations or labor efficiency variances.

Investment and Nonfinancial Considerations

The proposed equipment purchase of $720,000 requires a payback period analysis, which shows how long it takes to recover the investment through cash flows. Nonfinancial factors, including market demand, competition, brand reputation, and safety regulations, are vital considerations before commencing operations.

Conclusion

Launching a bicycle helmet manufacturing business demands meticulous planning, precise costing, and strategic financial management. By thoroughly analyzing costs, projecting budgets, and considering nonfinancial elements, entrepreneurs can position themselves for success in a competitive market.

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