( 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).