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: Estimated Variable Cost (per unit sold) Estimated Fixed Cost Production costs: Direct materials... $ 46 Direct labor ... 40 Factory overhead. Selling expenses: $200,000 20 Sales salaries and commissions... 110,000 8 Advertising... Travel .... Miscellaneous selling expense 40,000 12,000 7,600 1 Administrative expenses: Office and officers' salaries .... 132,000 Supplies...... 10,000 4 Miscellaneous administrative expense... 13,400 Total .... $525,000 $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. 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. 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.
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: Estimated Variable Cost (per unit sold) Estimated Fixed Cost Production costs: Direct materials... $ 46 Direct labor ... 40 Factory overhead. Selling expenses: $200,000 20 Sales salaries and commissions... 110,000 8 Advertising... Travel .... Miscellaneous selling expense 40,000 12,000 7,600 1 Administrative expenses: Office and officers' salaries .... 132,000 Supplies...... 10,000 4 Miscellaneous administrative expense... 13,400 Total .... $525,000 $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. 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. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
Estimated
Estimated Variable Cost
Fixed Cost
(per unit sold)
Production costs:
Direct materials....
$ 46
Direct labor ....
40
Factory overhead.
Selling expenses:
$200,000
20
Sales salaries and commissions...
110,000
8
Advertising...
Travel ....
Miscellaneous selling expense
40,000
12,000
7,600
1
Administrative expenses:
Office and officers' salaries .
132,000
Supplies...
Miscellaneous administrative expense.
Total ...
10,000
4
1
13,400
$525,000
$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.
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.
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:WOLSEY INDUSTRIES INC.
Estimated Income Statement
For the Year Ended December 31, 2016
Sales
Cost of goods sold:
Direct materials
Direct labor
Factory overhead
Cost of goods sold
Gross profit
Expenses:
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
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