( 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 ).