Problem: Atlantic Corporation assembles bicycles by purchasing frames, wheels, and other parts from various suppliers. Consider the following data:
- The company plans to sell 25,000 bicycles during each month of the year's first quarter.
- A review of the accounting records disclosed a finished-goods inventory of 1,400 bicycles on January 1 and an expected finished-goods inventory of 1,850 bicycles on January 31.
- Atlantic has 4,300 wheels in inventory on January 1, a level that is expected to drop by 5% at month-end.
- Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour.
- Atlantic accounts for employee benefits as a component of direct labor cost. Pension and insurance costs average $2 per hour (total); additionally, the company pays Social Security taxes that amount to 8% of gross wages earned.
Required to do:
Q1. How many bicycles does Atlantic expect to produce (i.e., assemble) in January?
Q2. How many wheels must be purchased to satisfy production needs?
Q3. Compute Atlantic's total direct labor cost.
Q4. Briefly explain how the company's purchasing activity would affect the end-of-period balance sheet.