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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

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 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:

Question not attempted.

1

Estimated Fixed Cost

Estimated Variable Cost (per unit sold)

2

Production costs:

3

Direct materials

$46.00

4

Direct labor

40.00

5

Factory overhead

$200,000.00

20.00

6

Selling expenses:

7

Sales salaries and commissions

110,000.00

8.00

8

Advertising

40,000.00

9

Travel

12,000.00

10

Miscellaneous selling expense

7,600.00

1.00

11

Administrative expenses:

12

Office and officers salaries

132,000.00

13

Supplies

10,000.00

4.00

14

Miscellaneous administrative expense

13,400.00

1.00

15

Total

$525,000.00

$120.00

It is expected that 21,875 units will be sold at a price of $160 a unit. Maximum sales within the relevant range

The range of activity over which changes in cost are of interest to management.

are 27,000 units.

Required:
A. Prepare an estimated income statement for 2016. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.
B. What is the expected contribution margin ratio

The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.

?
C. Determine the break-even sales in units and dollars.
D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
E. What is the expected margin of safety in dollars and as a percentage of sales?
F. Determine the operating leverage. Round to one decimal place.

none

X

Labels and Amount Descriptions

Labels

In CengageNOW, a Label is a text entry that does not have an amount associated with it.

and Amount Descriptions

In CengageNOW, an Amount Description is a text entry other than an Account that has an amount associated with it.

Advertising
Contribution margin
Cost of goods sold
Direct labor
Direct materials
Expenses
Factory overhead
Gross profit
Income from operations
Manufacturing margin
Miscellaneous administrative expense
Miscellaneous selling expense
Office and officers salaries
Sales
Sales salaries and commissions
Supplies
Total administrative expenses
Total expenses
Total selling expenses
Travel
Variable cost of goods sold

none

X

Income Statement

A. Prepare an estimated income statement for 2016. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Question not attempted.

Wolsey Industries Inc.

Estimated Income Statement

For the Year Ended December 31, 2016

1

2

3

4

5

6

7

8

9

Selling expenses:

10

11

12

13

14

15

Administrative expenses:

16

17

18

19

20

Total expenses

21

Solution

Wolsey Industries Inc.

Estimated Income Statement

For the Year Ended December 31, 2016

1

2

3

4

5

6

7

8

9

Selling expenses:

10

11

12

13

14

15

Administrative expenses:

16

17

18

19

20

Total expenses

21

Points:

Feedback

Check My Work

Explanation

none

X

Additional Questions

B. What is the expected contribution margin ratio

The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.

?

Points:

Feedback

Check My Work

Explanation

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

Units units
Dollars selector 1

$2,100,000

$3,000,000

$1,200,000

$1,400,000

Points:

Feedback

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Explanation

D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?

selector 1

$1,200,000

$3,000,000

$1,400,000

$2,100,000

Points:

Feedback

Check My Work

none

X

Final Questions

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

Dollars $
Percentage

Points:

Feedback

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Explanation

F. Determine the operating leverage. Round to one decimal place.

Points:

Feedback

Check My Work

Explanation

none

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