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Answer:
Wolsey Industries Inc.
A. Estimated Income Statement for year ended December 31, 2016
Sales Revenue $4,320,000
Cost of goods sold 3,062,000
Gross profit $1,258,000
Expenses:
7. Sales salaries and commissions 326,000
8 Advertising 40,000
9 Travel 12,000
10 Miscellaneous selling 34,600
11 Administrative expenses:
12 Office and officers’ salaries 132,000
13 Supplies 118,000
14 Miscellaneous administrative 40,400 $703,000
Net income $555,000
B. Expected Contribution Margin ratio = 25%
C. Break-even sales in units and dollars:
Sales in units: 13,125
Sales in dollars: $2,100,000
D. The break-even sales is 13,125 units and $2,100,000
E. The expected margin of safety:
Sales dollars: $2,220,000
Percentage of Sales: 48.6% ($2,100,000/$4,320,000)
F. Operating leverage: = Contribution/Net operating income
= $1,080,000/$555,000 = 1.95
Explanation:
a) Data and Calculations:
1 Estimated Estimated
Fixed Cost 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
Selling price per unit = $160
Sales volume = 27,000 units
Sales revenue = $4,320,000 ($160 * 27,000)
Variable production cost = $106 per unit
Total variable production costs = $2,862,000 ($106 * 27,000)
Fixed production cost = 200,000
Total production cost = $3,062,000
Total Per Unit
Sales revenue = $4,320,000 $160
Variable production costs = $2,862,000 106
Variable expenses 378,000 14
Total variable costs $3,240,000 $120
Contribution = $1,080,000 $40
Contribution margin ratio = 25% ($40/$160 * 100)
Total fixed costs:
Production costs = $200,000
Selling and admin = 325,000
Total fixed costs = $525,000
Break-even point = Fixed costs/Contribution margin per unit
= $525,000/$40 = 13,125
Break-even point in dollars = $525,000/25% = $2,100,000
7. Sales salaries and commissions 326,000 (110,000.00 + (27,000 * 8.00))
8 Advertising 40,000
9 Travel 12,000
10 Miscellaneous selling
expense 34,600 (7,600.00 + (27,000 * 1.00))
11 Administrative expenses:
12 Office and officers’ salaries 132,000
13 Supplies 118,000 (10,000.00 + (27,000 * 4.00))
14 Miscellaneous administrative
expense 40,400 (13,400.00 + (27,000 * 1.00))
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