Wolsey Industries Inc. expects to maintain the same inventories at the end of 20
ID: 2595365 • Letter: W
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:
1
Estimated Fixed Cost
Estimated Variable Cost (per unit sold)
2
Production costs:
3
Direct materials
—
$50.00
4
Direct labor
—
32.00
5
Factory overhead
$190,000.00
20.00
6
Selling expenses:
7
Sales salaries and commissions
101,000.00
12.00
8
Advertising
36,000.00
—
9
Travel
14,000.00
—
10
Miscellaneous selling expense
7,600.00
1.00
11
Administrative expenses:
12
Office and officers’ salaries
137,000.00
—
13
Supplies
11,000.00
4.00
14
Miscellaneous administrative expense
14,600.00
1.00
15
Total
$511,200.00
$120.00
It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 26,175 units.
1
Estimated Fixed Cost
Estimated Variable Cost (per unit sold)
2
Production costs:
3
Direct materials
—
$50.00
4
Direct labor
—
32.00
5
Factory overhead
$190,000.00
20.00
6
Selling expenses:
7
Sales salaries and commissions
101,000.00
12.00
8
Advertising
36,000.00
—
9
Travel
14,000.00
—
10
Miscellaneous selling expense
7,600.00
1.00
11
Administrative expenses:
12
Office and officers’ salaries
137,000.00
—
13
Supplies
11,000.00
4.00
14
Miscellaneous administrative expense
14,600.00
1.00
15
Total
$511,200.00
$120.00
Explanation / Answer
Answers:
A.
B. Expected Contribution Margin Ratio = Contribution *100 / Sales
= $ 852,000*100/ $3,408,000
= 25%
C. Break Even Sales (in units) = Total fixed cost / contribution per unit
= $ 511,200 / ($160-$120)
= 12,780 Units
Break Even Sales (in dollars) = Total Fixed cost/ contribution ratio
= $ 511,200/25%
= $ 2,044,800
D. Cost - volume -profit chart is as follows : (image is uploaded)
E. Expected Margin of safety (in dollars) = Total sales- break even sales
= $ 3,408,000 - $2,044,800
= $ 1363,200
Expected Margin of safety (in percentage ) = (Total sales- break even sales)*100/ total sales
= $ 1363,200*100/$3,408,000
= 40%
F. Operating leverage ratio = Contribution/ Net income
= $852,000/$340,800
= 2.5 times
Wolsey Industries Inc. Estimated Income Statement For the year ending December 31,2016 Sales 34,08,000 Less Variable cost Direct Materials -10,65,000 Direct Labor -6,81,600 Factory Overhead -4,26,000 Sales Salaries and commission -2,55,600 Miscellaneous Selling expense -21,300 Supplies -85,200 Miscellaneous administrative expense -21,300 Contribution 8,52,000 Less fixed cost : Factory overhead -1,90,000 Sales Salaries and commission -1,01,000 Advertising -36,000 Travel -14,000 Miscellaneous Selling expense -7,600 Office and officers' salaries -1,37,000 Supplies -11,000 Miscellaneous administrative expense -14,600 Net Income 3,40,800Related Questions
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