Question

It is expected that 15,000 units will be sold at a price of $260 a unit. Maximum sales within relevant range are 20,000 units.

Instructions:

1. Prepare an estimated income statement
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars
4. What is the expected margin of safety in dollars and as a percentage of sales? Round to one decimal place
5. Determine the operating leverage

1.    

A Company Estimated Income Statement For the Year Ended December 31
Sales
Cost of goods sold:
Direct materials
Direct labor
Factory overhead
Total cost of goods sold
Gross profit
Expenses:
Selling expenses:
Sales salaries and commissions
Advertising
Travel
Miscellaneous selling expense
Total selling expenses
Administrative expenses:
Office and officers’ salaries
Supplies
Miscellaneous administrative expense
Total administrative expenses
Total expenses
Operating income

10.) Several items are omitted from the income statement and cost of goods sold manufactured statement data for two different companies for the month of December A Company $ 75,800 B Company $ 175,300 81,140 (a) 292,800 327,800 397,800 158,400 567,220 246,060 1,509,000 (b) Materials inventory Dec 1 Materials inventory Dec 31 Materials Purchased Cost of direct materials used in production Direct labor Factory Overhead Total Manufacturing costs incurred in December Total manufacturing costs Work in process inventory Dec 1 Work in process inventory Dec 31 Cost of goods manufactured Finished goods inventory Dec 983,000 129,000 1,717,320 198,320 182,200 (c) (c) 234,000 1,522,020 259,0808 Finished goods inventory Dec 207,400 (d) 1,934,320 1,534,040 Sales Cost of goods sold Gross profit Operating expenses Net income 1,137,000 (d) e l 127,600 (f) (f) 154,920 Instructions: 1. For both companies, determine the amounts of the missing items (a) through (t), identify them by letter 2. Prepare statement of goods manufactured for December for company A 3. Prepare incomes statements for December for company A 1. Company A. Company B a. CO1,560 b.695,720 c. 393,620

10 is answered

Answer 1

Part 1
	A Company
	Estimated Income Statement
	For the Year ended December 31
		15000 units
	Sales			$      39,00,000
	Cost of goods sold:
	Direct Materials		$        6,75,000
	Direct labor		$        6,00,000
	Factory Overhead		$        3,25,000
	Total Cost of goods sold			$      16,00,000
	Gross Profit			$      23,00,000
	Expenses:
	Selling expenses:
	Sales salaries and commissions		$        4,30,000
	Advertising	$      1,06,000
	Travel	$           6,000
	Miscllaneous selling expenses	$         33,300	$        1,45,300
	Total selling expenses		$        5,75,300
	Administrative expenses:
	Office and Officers salaries	$      4,25,000
	Supplies	$         84,000
	Miscllaneous administrative expenses	$         36,700
	Total administrative expenses		$        5,45,700
	Total Expenses			$      11,21,000
	Operating Income			$      11,79,000
Part 2 and 3	Contribution margin Income statement
	Sales Price per unit	$              260
	Less:Variable cost per unit	$              105
	Contribution margin per unit	$              155
	Contribution margin ratio($155/$260)	59.62%
	Fixed Costs	$    11,46,000
	Break-even sales in units($1,146,000/$155)	7394	units
	Break-even sales in dollars($1,146,000/59.62%)	$    19,22,323
Part 4	Margin of Safety in dollars($3,900,000-$1,922,323)	$    19,77,677
	Margin of Safety as a percentage of sales(100%-59.62%)	40.38%