Question

Instructions Wolsey Industries Inc. expects to maintain the same inventories at the end of 2013 as at the beginning of the year. The total of all production costs for the years 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 Fred Estimated Variable Cost (per unit sold) 1 Production costs Direct materials 350.00 12.00 4 Direct labor 5 Factory overhead $190,000.00 20.00 101.000.00 12.00 600.00 14100 • Selling expenses 1 Sales salaries and commissions # Advertising • Travel Miscellaneous Sing pense 11 Administrative expenses Office and officers salaries 750000 1200000

Answer 1

Answer to question ! Wolsey Industries Inc. Estimated Income Statement For the Year Ended December 31,20Y3 REVENUE: Sales (21300 Untits*$160) S 3,408,000,00 COST OF GOODS SOLD: Direct Material Direct labour Varibale Factory Overhead Factory Overhead (21300 Units *$50) (21300 Units $32) (21300 Units *$37) S 1,065,000.00 S 681,600.00 S 788,100.00 S 190,000.00 $ 2,724,700.00 GROSS POFIT S 683,300.00 EXPENSES: SELLING EXPENSES: Advertising Miscellaneous Sceling Expenses sales salaries & Commission s s S 36,000.00 7,600.00 101,000.00 Travel S S 14,000.00 158,600.00 TOTAL SEELING EXPENSES: ADMINISTRATIVE EXPENSES: Office & Officers Salaries Miscellaneous Expenses Supplies TOTAL ADMINISTRATIVE EXPENSES S S s S 137,000.00 14.600.00 11,000.00 162.600.00 TOTAL EXPENSES: (A)+(B) S 321,200.00 NET PROFIT: | $ 362,100.00

2. What is the expected contribution margin ratio? >Contribution Margin Ration = Contribution/Sales* 100 >Contribution = sales - Variable Cost >Estimated sales is given $ 3,408,000.00 >Estimated Variable Cost = Direct Material +Direct Labor >Direct Material is given $ 1,065,000.00 >Direct Labor is given $ 681,600.00 > Variable Cost is given $ 788,100.00 >Total variable Cost = $1,065,000.00+$ 681,600.00+$ 788,100.00 - $2,537,700.00 >Contribution = (sales variable cost) = $3,408,000.00 - $ 2,537,700.00 = $ 873,300.00 >Expected Contribution Margin Ration = $873,300.00/$3,408,000.00 *100 = 26.00% or 0.26 3. Determine break even sales in units & dollars. (A) Break Even Point in units - Total Fixed Cost - (Revenue per Unit - Variable Cost per Unit) > Revenue per unit is given $ 160.00 >Variable cost per unit = (Direct material per unit + Direct labor per unit + variable cost per unit) >Variable cost per unit = ($ 50.00+$32.00+$37.00) = $ 119.00 >Fixed Cost = (Fixed Factory Overhead + Fixed Selling Expenses + Fixed Administrative Expenses) > Fixed Cost = ($ 190,000.00 + $ 158,600.00 + $ 162,600.00) = $ 511,200.00 > Break Even Point in units = $ 511,200.00/($160-$119) = 12468 units (B) Break Even Point in dollar = Total Fixed Cost / Contribution Margin Ratio >Total Fixed Cost = $ 511,200.00 (as calculated in (A)) >Contribution Margin = 0.26 (as calculated in question no. 2) > Break Even Point in dollar = $ 511,200.00/0.26 = $ 1,966,154.00

4. Break Even sales = (same calculated in question number 3) 5. Expected Margin of safety (A) In Dollars = Actual Sales - Break Even Sales > Actual Sales = $ 3,408,000.00 >Break even sales = $ 1,966,154.00 (as calculated in question no. 3) > Margin of safety in dollars = $ 3,408,000.00 - $ 1,966,154.00 = $ 1,441,846.00 (B) Margin of safety in % = (Actual Sales - Break Even Sales)/Actual Sales > Margin of safety in % = ($ 3,408,000.00 - $ 1,966,154.00/$3,408,000.00 = 42.00% 6. Operating Leverage > Operating Leverage = Contribution/ Contribution-Total Fixed Cost >Operation Leverage = $ 873,300.00/$ 873,300.00- $ 511,200.00 > Operation Leverage = $ 873,300.00/$362,100.00=2.41