Soldner Health Care Products Inc. expects to maintain the same inventories at th

Question

Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2012 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 2012. A summary report of these estimates is as follows:

It is expected that 12,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 15,000 units.

1. Prepare an estimated income statement for 2012.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.

%

3. Determine the break-even sales in units.
units

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$ 5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Estimated Fixed Cost Estimated Variable Cost
(per unit sold) Production costs: Direct materials $17 Direct labor 12 Factory overhead $587,800 9 Selling expenses: Sales salaries and commissions 122,100 4 Advertising 41,300 Travel 9,200 Miscellaneous selling expense 10,100 3 Administrative expenses: Office and officers' salaries 119,400 Supplies 14,700 1 Miscellaneous administrative expense 13,800 2 Total $918,400 $48

Explanation / Answer

HI,

Please find the answers as follows:

Part 2:

Contribution Ratio = (160 - 48)/160*100 = 70%

Part 3:

Break Even Sales (Units) = 918400/(160 -48) = 8200 units

Part 4:

Break Even Sales (Dollars) = 8200*160 = 1312000

Thanks.

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