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 | ||
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