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 assuemd to be equal to the cost of goods sold. With this in mi, 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 expenses	7,600	1
Administrative expenses:
---Office and selling expense	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.

Instructions:

1. Prepare an estimated income statement for 2016.

2. What is the expected contribution margin ratio?

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

4. Construct a cost-volume-profit chart indicating the break-even sales.

5. What is the expected margin of saety in dollars and as a percentage of sales?

6. Determine the operating leverage.