Wolsey Industries Inc. expects to maintain the same inventoriesat the end of 20Y3 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 | — | $56.00 |
4 | Direct labor | — | 34.00 |
5 | Factory overhead | $188,000.00 | 20.00 |
6 | Selling expenses: | | |
7 | Sales salaries and commissions | 102,000.00 | 6.00 |
8 | Advertising | 39,000.00 | — |
9 | Travel | 12,000.00 | — |
10 | Miscellaneous selling expense | 7,400.00 | 1.00 |
11 | Administrative expenses: | | |
12 | Office and officers’ salaries | 141,200.00 | — |
13 | Supplies | 8,000.00 | 2.00 |
14 | Miscellaneous administrative expense | 13,600.00 | 1.00 |
15 | Total | $511,200.00 | $120.00 |
It is expected that 21,300 units will be sold at a price of $160a unit. Maximum sales within the relevant range are 25,825units.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars. Roundyour answers to the nearest whole number.
4. Construct a cost-volume-profit chart on your own paper. Whatis the break-even sales?
$
5. 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.
6. Determine the operating leverage. Round to one decimalplace.
