Contribution Margin , Break-Even Sales, Cost-Volume-Profit Chart , Margin of Saf

Question

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2012 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 2012. A summary report of these estimates is as follows:

It is expected that 11,100 units will be sold at a price of $120 a unit. Maximum sales within the relevant range are 14,000 units.

Prepare an estimated income statement for 2012

Estimated Fixed Cost Estimated Variable Cost
(per unit sold) Production costs: Direct materials $22 Direct labor 14 Factory overhead $284,200 11 Selling expenses: Sales salaries and commissions 59,100 5 Advertising 20,000 Travel 4,400 Miscellaneous selling expense 4,900 4 Administrative expenses: Office and officers' salaries 57,700 Supplies 7,100 2 Miscellaneous administrative expense 6,600 2 Total $444,000 $60

Explanation / Answer

Sales (11100*120) (A) 1332000 Cost of Goods Sold: Direct materials (11100*22) 244200 Direct labor (11100*14) 155400 Factory Overhead (284200 + 11100*11) 406300 Cost of Goods Sold (B) 805900 Gross Profit (A-B) 526100 Less Expenses Selling Expenses: Sales salaries and commissions (59100+11100*5) 114600 Advertising 20000 Travel 4400 Miscellaneous selling expense (4900 + 11100*4) 49300 Total Selling Expenses 188300 Administrative Expenses: Office and officers' salaries 57700 Supplies (7100+11100*2) 29300 Miscellaneous administrative expense (6600 + 11100*2) 28800 Total Administrative Expenses 115800 Total expenses 304100 Income from Operations (Gross Profit - Total Expenses) 222000

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