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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

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. ________________

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