Wolsey Industries Inc. expects to maintain the same inventoriesat the end of 2016 as at the beginning of the year. The total ofall production costs for the year is therefore assumed to be equalto the cost of goods sold. With this in mind, the variousdepartment heads were asked to submit estimates of the costs fortheir departments during the year. A summary report of theseestimates is as follows:
1 | | Estimated Fixed Cost | Estimated Variable Cost (per unit sold) |
2 | Production costs: | | |
3 | Direct materials | — | $58.00 |
4 | Direct labor | — | 38.00 |
5 | Factory overhead | $194,000.00 | 20.00 |
6 | Selling expenses: | | |
7 | Sales salaries and commissions | 102,000.00 | 8.00 |
8 | Advertising | 42,000.00 | — |
9 | Travel | 8,000.00 | — |
10 | Miscellaneous selling expense | 7,800.00 | 1.00 |
11 | Administrative expenses: | | |
12 | Office and officers’ salaries | 135,200.00 | — |
13 | Supplies | 10,000.00 | 2.00 |
14 | Miscellaneous administrative expense | 14,600.00 | 1.00 |
15 | Total | $513,600.00 | $128.00 |
It is expected that 21,400 units will be sold at a price of $160a unit. Maximum sales within the relevant range are 26,000units.
| Required: |
| A. | Prepare an estimated income statement for 2016. Refer to theLabels and Amount Descriptions list provided for the exact wordingof the answer choices for text entries. |
| B. | What is the expected contribution margin ratio? |
| C. | Determine the break-even sales in units and dollars. Round youranswers to the nearest whole number. |
| D. | Construct a cost-volume-profit chart on your own paper. What isthe break-even sales? |
| E. | What is the expected margin of safety in dollars and as apercentage of sales? Round your answers to the nearest wholenumber. |
| F. | Determine the operating leverage. Round to one decimalplace. |
Income Statement
A. Prepare an estimated income statement for 2016. Refer to theLabels and Amount Descriptions list provided for the exact wordingof the answer choices for text entries.
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 | | | | |
Additional Questions
B. What is the expected contribution margin ratio?
C. Determine the break-even sales in units and dollars. Start byusing the contribution margin ratio (part B.) and then round youranswers to the nearest whole number.
D. Construct a cost-volume-profit chart on your own paper. Whatis the break-even sales?
$
Final Questions
E. What is the expected margin of safety in dollars and as apercentage of sales? If applicable, use amounts previously computedand then round your answers to the nearest whole number.
F. Determine the operating leverage. Round to one decimalplace.
| Labels and Amount Descriptions | |
| 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 |
