Wolsey Industries Inc. expects to maintain the same inventories at the end of 20

Question

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:

It is expected that 22,325 units will be sold at a price of $140 a unit. Maximum sales within the relevant range are 27,200 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? C. Determine the break-even sales in units and dollars. Round your answers to the nearest whole number. 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? Round your answers to the nearest whole number. F. Determine the operating leverage. Round to one decimal place. Estimated Variable Cost (per unit sold) Estimated Fixed Cost 2Production costs: 3Direct materials 4Direct labor 5 Factory overhead 6 Selling expenses: 7 Sales salaries and commissions 8 Advertising 9 Travel 10 Miscellaneous selling expense 11 Administrative expenses: 12 Office and officers' salaries 13 Supplies $35.00 36.00 20.00 $188,000.00 106,000.00 42,000.00 9,000.00 7.000.00 6.00 1.00 160,800.00 8,000.00 15,000.00 535,800.00 6.00 1.00 $105.00 14 Miscellaneous administrative expense 15 Total

Explanation / Answer

1)

B)

C)

contribution margin ratio

= contribution margin per unit / selling price per unit

= $35 / $140 = 0.25

Total fixed cost = 188000 + 106000 + 42000 + 9000 + 7000 + 160800 + 8000 + 15000= $535800

Break even point in units

= Fixed cost / contribution margin per unit

= $535800 / $35 = 15309 units

BEP in dollars

= Fixed cost / contribution margin ratio

= $535800 / 0.25

= $2143200

E)

Margin of safety = sales - break even sales = $3125500 - $2143200 = $982300

Margin of safety as a percentage of sales = $982300 / $3125500 = 31.43%

F)

Operating leverage

= contribution / operating income

= (22325 units * $35/unit) / 245575

= $781375 / $245575

= 3.18

Estimated Income statement for 2016 $) Sales      31,25,500.00 Less:Cost of goods sold Direct material 781375 Direct Labour 803700 Variable factory overhead 446500 Fixed factory overhead 188000      22,19,575.00 Gross Profit        9,05,925.00 less: operating expenses: Selling expenses varaible sales salaries and commissions 133950 Fixed sales salaries and commissions 106000 advertising 42000 travel 9000 miscellaneous selling expenses-fixed 7000 miscellaneous selling expenses-variable 22325 320275 Administrative expenses: office and office salaries 160800 supplies-variable 133950 supplies- fixed 8000 Miscellaneous administrative expenses- fixed 15000 Miscellaneous administrative expenses- variable 22325 340075        6,60,350.00 Net income before tax        2,45,575.00

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.