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: Production costs: Direct materials..... Direct labor.... Factory overhead. Selling expenses: Estimated Fixed Cost $200,000 Estimated Variable Cost (per unit sold) $ 46 40 20

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Please read instructions on Image 1, and please answer questions on page 2.

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A
B
Problem 21-6A
C
Sales
Cost of goods sold:
Gross profit
Expenses:
WOLSEY INDUSTRIES INC.
Estimated Income Statement
For the Year Ended December 31, 2016
Direct materials
Direct labor
Factory overhead
Cost of goods sold
D
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
Income from operations
E
F
L
G
Transcribed Image Text:A B Problem 21-6A C Sales Cost of goods sold: Gross profit Expenses: WOLSEY INDUSTRIES INC. Estimated Income Statement For the Year Ended December 31, 2016 Direct materials Direct labor Factory overhead Cost of goods sold D 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 Income from operations E F L G
PR 21-6A Contribution margin, break-even sales, cost-volume-profit chart, OBJ. 2, 3, 4, 5
margin of safety, and operating leverage
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:
Production costs:
Direct materials..
Direct labor
Factory overhead..
Selling expenses:
Sales salaries and commissions..
Advertising.
Travel
Miscellaneous selling expense
Administrative expenses:
Office and officers' salaries
Supplies...
Miscellaneous administrative expense
Total
Estimated
Fixed Cost
$200,000
110,000
40,000
12,000
7,600
132,000
10,000
13,400
$525,000
Estimated Variable Cost
(per unit sold)
Instructions
1. Prepare an estimated income statement for 2016.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
$ 46
40
20
∞ | |-
8
1
|
4
$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.
4. Construct a cost-volume-profit chart indicating the break-even sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.
Transcribed Image Text:PR 21-6A Contribution margin, break-even sales, cost-volume-profit chart, OBJ. 2, 3, 4, 5 margin of safety, and operating leverage 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: Production costs: Direct materials.. Direct labor Factory overhead.. Selling expenses: Sales salaries and commissions.. Advertising. Travel Miscellaneous selling expense Administrative expenses: Office and officers' salaries Supplies... Miscellaneous administrative expense Total Estimated Fixed Cost $200,000 110,000 40,000 12,000 7,600 132,000 10,000 13,400 $525,000 Estimated Variable Cost (per unit sold) Instructions 1. Prepare an estimated income statement for 2016. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. $ 46 40 20 ∞ | |- 8 1 | 4 $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. 4. Construct a cost-volume-profit chart indicating the break-even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? 6. Determine the operating leverage.
Expert Solution
Step 1 Introduction

The question is based on the concept of Cost Accounting.

Income Statement: It is a part of the Financial Statements which shows the profit earned or loss incurred by an entity during a particular period from it operations.

Contribution margin ratio: Contribution margin is the difference between the sales and the variable cost. Contribution Margin Ratio is calculated by dividing the contribution by the total sales.

Break even sales: It is the level of sales at which there would be no profit and no loss. Also the contribution becomes equal to the fixed cost.

 

As per the Bartleby guidelines we are allowed to answer only the first three sub-parts in case of multiple sub-parts.

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