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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 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:

1		Estimated Fixed Cost	Estimated Variable Cost (per unit sold)
2	Production costs:
3	Direct materials		$50.00
4	Direct labor		32.00
5	Factory overhead	$190,000.00	20.00
6	Selling expenses:
7	Sales salaries and commissions	101,000.00	12.00
8	Advertising	36,000.00
9	Travel	14,000.00
10	Miscellaneous selling expense	7,600.00	1.00
11	Administrative expenses:
12	Office and officers salaries	137,000.00
13	Supplies	11,000.00	4.00
14	Miscellaneous administrative expense	14,600.00	1.00
15	Total	$511,200.00	$120.00

It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 26,175 units.

	Required:
1.	Prepare an estimated income statement for 20Y3. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all amounts as positive values.
2.	What is the expected contribution margin ratio?
3.	Determine the break-even sales in units and dollars. Round your answers to the nearest whole number.
4.	Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
5.	What is the expected margin of safety in dollars and as a percentage of sales? Round your answers to the nearest whole number.
6.	Determine the operating leverage. Round to one decimal place.

Income Statement

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1. Prepare an estimated income statement for 20Y3. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all amounts as positive values.

Score: 26/152

Wolsey Industries Inc.

Estimated Income Statement

For the Year Ended December 31, 20Y3

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9	Selling expenses:
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15	Administrative expenses:
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20	Total expenses
21

Points:

5.99 / 35

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Check My Work

Use the absorption costing format.

Additional Questions

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2. What is the expected contribution margin ratio?

Points:

1 / 1

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Sales minus variable costs equals contribution margin. Contribution margin divided by sales equals contribution margin ratio.

3. Determine the break-even sales in units and dollars. Round your answers to the nearest whole number.

Units	units
Dollars	$

Points:

0 / 2

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Check My Work

Fixed costs divided by unit contribution margin equals break-even sales in units. Fixed costs divided by the contribution margin ratio equals the break-even sales in dollars.

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

$

Points:

0 / 1

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Check My Work

Draw lines for total costs and total sales. The two lines should intersect at the break-even point.

Final Questions

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5. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.

Dollars	$
Percentage

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