Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2010 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 2010. A summary report of these estimates is as follows:

It is expected that 20,000 units will be sold at a price of $100 a unit. Maximum sales within the relevant range are 25,000 units.Instructions1. Prepare an estimated income statement for 2010.2. What is the expected contribution margin ratio?3. Determine the break-even sales in units.4. Construct a cost-volume-profit chart indicating 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.

Transcribed Image Text:

Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $18.00 Direct labor 12.00 Factory overhead Selling expenses: Sales salaries and commissions Advertising Travel $318,000 9.00 65,500 22,500 5,000 5,500 4.00 Miscellaneous selling expense Administrative expenses: 3.50 Office and officers'salaries 65,000 8,000 10,500 $500,000 Supplies Miscellaneous administrative expense 1.50 2.00 Total $50.00