Question

G ww Required Enter your password for olan nguyen011294" in Internet AAK PR 21-6A Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Obj. 2, 3, 4, 5 Wolsey Industries Inc. expects to maintain the same inventories at the end of 2048 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 Fixed Cast Estimated Variable Cost (per unit sold) $200,000 Production costs: Direct materials.... Direct labor.. Factory overhead Selling expenses Sales salaries and commissions........ Advertising............ .. ...... Travel .... . Miscellaneous selling expenses Administrative expenses Office and officers salaries .... e and officers salaries... Supplies.... Miscellaneous administrative expense. Total . ... 110.000 40.000 12.000 7,600 - 1188 132,000 10.000 13.400 $525.000 This 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

Answer 1

DATA
	Estimated Fixed Cost	Estimated Variable Cost
Production Costs
Direct Materials	0	$46
Direct Labor		$40
Factory Overhead	$200,000	$20
Total Production cost	$200,000	$106
Selling Expenses
Sales salaries and commission	$110,000	$8
Advertising	$40,000	$0
Travel	$12,000	$0
Miscellaneous selling expenses	$7,600	$1
Total Selling Expenses	$169,600	$9
Administrative Expenses
Office and Officers expenses	$132,000
Supplies	$10,000	$4
Misc Admin Expenses	$13,400	$1
Total Administrative Expenses	$155,400	$5
Total	$525,000	$120

Wolsey Industries Inc.
Estimated Income Statement For 20Y8
Estimated units to be sold (in Units)	21875
Particulars	$	$
Revenues (21,875*160) - (A)		$3,500,000
Less: Cost of goods Sold/ production cost
Direct Materials (21875*46)	$1,006,250
Direct Labor (21875*40)	$875,000
Factory Overhead : Variable (21875*20)	$437,500
Factory Overhead : Fixed	$200,000
Total Cost Of Goods Sold (B)		$2,518,750
Gross Profit (C = A - B)		$981,250
Less: Operating Expenses
Selling Expenses (Fixed)	$169,600
Selling Expenses (Variable) - $9*21875	$196,875
Administrative Expenses ( Fixed)	$155,400
Administrative Expenses ( Variable) $5*21875	$109,375
Total Operating Expenses (D)		$631,250
Net Income (C - D)		$350,000

Wolsey Industries Inc.
Contribution Margin Ratio
		Per unit	Total For 21875 units
Selling price per unit		$160	$3,500,000
Less: Variable price per unit
Direct Materials	$46
Direct Labor	$40
Factory Overhead	$20
Sales salaries and commission	$8
Miscellaneous selling expenses	$1
Supplies	$4
Misc Admin Expenses	$1
		$120	$2,625,000
Contribution ( Sales - Variable cost)		$40	$875,000
(a) Contribution Margin Ratio
Formula : (Sales - Variable expenses) ÷ Sales = Contribution margin ratio
($3500000 - 2625000) / $3500000 =	0.25
(b) Break even Sales Units and Dollars
Formula : Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
Formula : Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin
Fixed Cost
Factory Overhead	$200,000
Sales salaries and commission	$110,000
Advertising	$40,000
Travel	$12,000
Miscellaneous selling expenses	$7,600
Office and Officers expenses	$132,000
Supplies	$10,000
Misc Admin Expenses	$13,400
	$525,000
Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
$525000/(160-120)	13125	units
Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin
$525000/0.25	$2,100,000
(c) Margin of Safety in Units and Dollars
Formula : Margin of Safety in Units = Estimated Sales Units - Break even Units
Estimated Units	21875
Break even Units	13125
Margin OF safety in units	8750
Formula : Margin of Safety in Dollars = Estimated Sales in dollars - Break even Point in Dollars
Estimated Sales in Dollars	$3,500,000
Break even Point in Dollars	$2,100,000
Margin of Safety in Dollars	$1,400,000
(d) Formula : Operating Leverage
Degree of operating leverage = Contribution Margin / Profit Or Net Income
Contribution Margin	$875,000
Net Income	$350,000
Degree of operating leverage	2.5