Soldner Health Care Products Inc. expects to maintain the same inventories at th
ID: 2360989 • Letter: S
Question
Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2010 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 2010. A summary report of these estimates is as follows: x Estimated Estimated Variable Cost x Fixed Cost (per unit sold) __________________________________________________________ Production costs: Direct materials $0 $18.00 Direct labor 0 12.00 Factory overhead 318,000 9.00 Selling expenses: Sales salaries and commissions 65,500 4.00 Advertising 22,500 0.00 Travel 5,000 0.00 Miscellaneous selling expense 5,500 3.50 Administrative expenses: Office and officersExplanation / Answer
SOLDNER HEALTH CARE PRODUCTS INC.
Estimated Income Statement
For the Year Ended December 31, 2010
Sales............................................................................ $ 2,000,000
Cost of goods sold:
Direct materials................................................... $360,000
Direct labor.......................................................... 240,000
Factory overhead............................................... 498,000
Cost of goods sold...................................... 1,098,000
Gross profit................................................................ $ 902,000
Expenses:
Selling expenses:
Sales salaries and commissions............. $145,500
Advertising.................................................... 22,500
Travel.............................................................. 5,000
Miscellaneous selling expense................ 75,500
Total selling expenses......................... $248,500
Administrative expenses:
Office and officers’ salaries....................... $ 65,000
Supplies......................................................... 38,000
Miscellaneous administrative expense.. 50,500
Total administrative expenses........... 153,500
Total expenses................................................... 402,000
Income from operations......................................... $ 500,000
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2. Contribution Margin Ratio =
=2 000 000 –(20000 x50 ) /2 000 000= 1 000 000/ 2 000 000=50%
Contribution Margin Ratio = = = 50%
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3. Break-Even Sales (units) =
Fixed costs/unitscontribution margin= 5000 000/100-50 =10 000 units
Break-Even Sales (dollars) = 10,000 units × $100 per unit = $1,000,000
Prob. 21–6A Concluded
4.
Operating
Profit Area
Break-Even
Point
Total
Sales
Total
Costs
Operating
Loss Area
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5. Margin of safety:
In dollars:
Expected sales (20,000 units × $100)........................................... $ 2,000,000
Break-even point (10,000 units × $100)........................................ 1,000,000
Margin of safety................................................................... $ 1,000,000
As a percentage of sales:
=sales-sales at breakeven pint/sales= 1 000 000/2 000 000=50%
Margin of Safety = = 50%
6.
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Contribution margin/ income from operation = (20000- 50 )/500 000=2.0
Operating
Profit Area
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