Question

Wolsey Industries Inc. expects to maintain the same inventories at the end of 2093 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:

Answer 1

Part 1	WOLSEY INDUSTRIES INC.
	Estimated Income Statement
	For the Year ended December 31
		21300 units
	Sales			$              34,08,000
	Cost of goods sold:
	Direct Materials		$                   9,79,800
	Direct labor		$                   8,52,000
	Factory Overhead		$                   6,14,000
	Total Cost of goods sold			$              24,45,800
	Gross Profit			$                9,62,200
	Expenses:
	Selling expenses:
	Sales salaries and commissions		$                   2,73,400
	Advertising	$                 39,000
	Travel	$                 14,000
	Miscllaneous selling expenses	$                 29,300	$                      82,300
	Total selling expenses		$                   3,55,700
	Administrative expenses:
	Office and Officers salaries	$              1,33,200
	Supplies	$                 96,200
	Miscllaneous administrative expenses	$                 36,300
	Total administrative expenses		$                   2,65,700
	Total Expenses			$                6,21,400
	Operating Income			$                3,40,800
Part 2 and 3 and 4	Contribution margin Income statement
	Sales Price per unit	$                      160
	Less:Variable cost per unit	$                      120
	Contribution margin per unit	$                        40
	Contribution margin ratio($40/$160)	25.00%
	Fixed Costs	$              5,11,200
	Break-even sales in units($511,200/$40)	12780	units
	Break-even sales in dollars($511,200/25%)	$            20,44,800
Part 5	Margin of Safety in dollars($3,408,000-$2,044,800)	$            13,63,200
	Margin of Safety in percentage($1,363,200/$3,408,000)	40.0%
Part 6	Operating leverage =Contribution margin / Operating Income
	Operating leverage =($40*21300) / $340,800
	Operating leverage =$852,000 / $340,800 =2.50