Question
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Wolsey Industries Inc. expects to maintain the same inventories at the end of
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage
Wolsey Industries Inc. expects to maintain the same inventories at the end of 20Y3 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:
Estimated Fixed Cost | Estimated Variable Cost (per unit sold) | ||||||
Production costs: | |||||||
Direct materials | $46 | ||||||
Direct labor | 40 | ||||||
Factory overhead | $200,000 | 20 | |||||
Selling expenses: | |||||||
Sales salaries and commissions | 110,000 | 8 | |||||
Advertising | 40,000 | ||||||
Travel | 12,000 | ||||||
Miscellaneous selling expense | 7,600 | 1 | |||||
Administrative expenses: | |||||||
Office and officers' salaries | 132,000 | ||||||
Supplies | 10,000 | 4 | |||||
Miscellaneous administrative expense | 13,400 | 1 | |||||
Total | $525,000 | $120 |
It is expected that 21,875 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 27,000 units.
Required:
Question Content Area
1. Prepare an estimated income statement for 20Y3.
Direct materialsOperating incomeMiscellaneous administrative expenseSales salaries and commissionsSales | $- Select - | ||
Cost of goods sold: | |||
Direct materialsOperating incomeSalesSuppliesTravel | $- Select - | ||
AdvertisingDirect laborOperating incomeLoss from operationsOffice and officers' salaries | - Select - | ||
Factory overheadMiscellaneous administrative expenseSalesSuppliesTravel | - Select - | ||
Total cost of goods sold | fill in the blank 4e5f47f61fd8ff6_9 | ||
Gross profit | $fill in the blank 4e5f47f61fd8ff6_10 | ||
Expenses: | |||
Selling expenses: | |||
Factory overheadOperating incomeMiscellaneous administrative expenseSales salaries and commissionsSales | $- Select - | ||
AdvertisingCost of goods manufacturedDirect materialsOffice and officers' salariesSales | - Select - | ||
Direct laborFactory overheadSalesSuppliesTravel | - Select - | ||
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSupplies | - Select - | ||
Total selling expenses | $fill in the blank 4e5f47f61fd8ff6_19 | ||
Administrative expenses: | |||
AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravel | $- Select - | ||
Direct materialsFactory overheadSalesSuppliesTravel | - Select - | ||
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSales salaries and commissionsSales | - Select - | ||
Total administrative expenses | fill in the blank 4e5f47f61fd8ff6_26 | ||
Total expenses | fill in the blank 4e5f47f61fd8ff6_27 | ||
Operating income | $fill in the blank 4e5f47f61fd8ff6_28 |
Question Content Area
2. What is the expected contribution margin ratio? fill in the blank 26c3bd0d602e010_1 %
3. Determine the break-even sales in units and dollars.
Units | fill in the blank 26c3bd0d602e010_2 units |
Dollars | $1,800,000$1,920,000$2,100,000$2,250,000 |
4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$1,800,000$1,920,000$2,100,000$2,250,000
5. What is the expected margin of safety in dollars and as a percentage of sales?
Dollars | $fill in the blank 26c3bd0d602e010_5 | |
Percentage (If required, round the percent to one decimal place, e.g. 15.4%.) | fill in the blank 26c3bd0d602e010_6 | % |
6. Determine the operating leverage. If required, round your answer to one decimal place, e.g. 15.4. fill in the blank 26c3bd0d602e010_7
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