Wolsey Industries Inc. expects to maintain the same inventories at the end of 2016 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Question not attempted.
1 Estimated Fixed Cost Estimated Variable Cost (per unit sold)
2 Production costs:
3 Direct materials — $46.00
4 Direct labor — 40.00
5 Factory overhead $200,000.00 20.00
6 Selling expenses:
7 Sales salaries and
commissions 110,000.00 8.00
8 Advertising 40,000.00 —
9 Travel 12,000.00 —
10 Miscellaneous selling
expense 7,600.00 1.00
11 Administrative expenses:
12 Office and officers’ salaries 132,000.00 —
13 Supplies 10,000.00 4.00
14 Miscellaneous administrative
expense 13,400.00 1.00
15 Total $525,000.00 $120.00
It is expected that 21,875 units will be sold at a price of $160 a unit. Maximum sales within the relevant range
The range of activity over which changes in cost are of interest to management.
are 27,000 units.
Required:
A. Prepare an estimated income statement for 2016. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.
B. What is the expected contribution margin ratio
The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.
?
C. Determine the break-even sales in units and dollars.
D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
E. What is the expected margin of safety in dollars and as a percentage of sales?
F. Determine the operating leverage. Round to one decimal place.