Case 7: Armstrong Helmet Company

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CASE 7
ARMSTRONG HELMET COMPANY
1.

Item
Administrative salaries
Advertising for helmets
Depreciation on factory building Depreciation on office equipment Insurance on factory building
Miscellaneous expenses— factory Office supplies expense
Professional fees
Property taxes on factory building Raw materials used
Rent on production equipment Research and development
Sales commissions
Utility costs—factory
Wages—factory
Totals

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Direct
Materials

Product Costs
Direct
Manufacturing
Labor
Overhead

Period
Costs
$15,500
11,000

$ 1,500
800
1,500
1,000
300
500
400
$70,000
6,000
10,000
40,000
900
$70,000
$70,000

$70,000

$11,300

$78,100

Case 7-1
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Direct materials
Raw materials inventory ................. $
0
(Dec. 1)
Raw materials purchased ............... 70,000
Less: Raw materials inventory
(Dec. 31) ....................................
0
Direct materials used...............................
Direct labor .................................................
Manufacturing overhead
Rent on production equipment........ $ 6,000
Insurance on factory building ....... 1,500
Depreciation on factory building............................................ 1,500
Utility costs—factory........................
900
Property taxes on factory building............................................ 400
Miscellaneous expenses— factory .............................................. 1,000
Total manufacturing costs.....................
Total cost of work in process ...............
Less: Work in process (Dec. 31)..........
Cost of goods manufactured ................

$

-0-

$70,000
70,000

11,300
$151,300
151,300
-0$151,300

4.

Production cost per helmet = $151,300 [from 3.] ÷ 10,000 = $15.13.

5.

The Armstrong Helmet Company likely uses a process cost system.
Process costing is used when large volumes of a homogenous product are produced on a continuous basis. Armstrong Helmet Company would find it useful, using a process costing system, to identify the cost of each production batch of bicycle helmets.

6.

If Armstrong Helmet Company decides to produce additional helmets

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