Determine the break-even sales in units and dollars

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Reference no: EM131807408

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 Fixed Cost	Estimated Variable Cost (per unit sold)
2	Production costs:		Estimated Variable Cost (per unit sold)
3	Direct materials		$56.00
4	Direct labor		36.00
5	Factory overhead	$194.000.00	20.00
⁶	Selling expenses:
⁷	Sales salaries and commissions	110.000.00	8.00
⁸	Advertising	42.000.00
⁹	Travel	13.000.00
to	Miscellaneous selling expense	7.000.00	1.00
11	Administrative expenses:
¹¹	Office and officers salaries	124.600.00
¹³	Supplies	8.000.00	6.00
14	Miscellaneous administrative expense	15.000.00	1.00
is	Total	$513.600.00	$128.00

It is expected that 21,400 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 26,275 units.

Required:

A. Prepare an estimated income statement for 2016. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.

B. What is the expected contribution margin ratio? = %

C. Determine the break-even sales in units and dollars. Start by using the contribution margin ratio (part B.) and then round your answers to the nearest whole number.

D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?

E. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.

F. Determine the operating leverage. Round to one decimal place.

Reference no: EM131807408

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