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:

1. Prepare an estimated income statement for 20Y3.

Wolsey Industries Inc.
Estimated Income Statement
For the Year Ended December 31, 20Y3
Sales			$______
Cost of goods sold:
Direct materials		$_____
Direct labor		______
Factory overhead		______
Total cost of goods sold			______
Gross profit			______
Expenses:
Selling expenses:
Sales salaries and commissions	$_______
Advertising	_______
Travel	_______
Miscellaneous selling expense	_______
Total selling expenses		$_______
Administrative expenses:
Office and officers' salaries	$______
Supplies	_______
Miscellaneous administrative expense	_______
Total administrative expenses		_______
Total expenses			_______
Operating income			$_______

2. What is the expected contribution margin ratio? _______

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

Units
Dollars	$

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $2,100,000

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

Dollars	$______
Percentage (If required, round the percent to one decimal place, e.g. 15.4%.)	_______	%

6. Determine the operating leverage. If required, round your answer to one decimal place, e.g. 15.4. ________________