Wolsey Industries Inc. expects to maintain the same inventories at the end of 20
ID: 2425546 • Letter: W
Question
Wolsey Industries Inc. expects to maintain the same inventories at the end of 2016 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:
1
Estimated Fixed Cost
Estimated Variable Cost (per unit sold)
2
Production costs:
3
Direct materials
—
$29.00
4
Direct labor
—
38.00
5
Factory overhead
$200,000.00
20.00
6
Selling expenses:
7
Sales salaries and commissions
101,000.00
12.00
8
Advertising
44,000.00
—
9
Travel
8,000.00
—
10
Miscellaneous selling expense
7,800.00
1.00
11
Administrative expenses:
12
Office and officers’ salaries
143,000.00
—
13
Supplies
8,000.00
4.00
14
Miscellaneous administrative expense
13,200.00
1.00
15
Total
$525,000.00
$105.00
It is expected that 21,875 units will be sold at a price of $140 a unit. Maximum sales within the relevant range are 26,425 units.
1
Estimated Fixed Cost
Estimated Variable Cost (per unit sold)
2
Production costs:
3
Direct materials
—
$29.00
4
Direct labor
—
38.00
5
Factory overhead
$200,000.00
20.00
6
Selling expenses:
7
Sales salaries and commissions
101,000.00
12.00
8
Advertising
44,000.00
—
9
Travel
8,000.00
—
10
Miscellaneous selling expense
7,800.00
1.00
11
Administrative expenses:
12
Office and officers’ salaries
143,000.00
—
13
Supplies
8,000.00
4.00
14
Miscellaneous administrative expense
13,200.00
1.00
15
Total
$525,000.00
$105.00
Explanation / Answer
A.
Income statement
B)
Contribution Margin = Contribution / Netsales * 100
CM = $765,625 / $3,062,500 * 100 = 25%
C)
BEP In units = Fixed cost / Contribution margine per unit
BEP = 525,000 / (140-105) = 15,000 units
BEP in value = Fixed cost / Contribution margine ratio
BEP in Value = 525,000/0.25 = $2,100,000
D) $2,100,000
E)
Margine of safty = Actual sales - Break even sales
MS= $3,062,500 - $2,100,000 = $962,500
MS % sales = $3,062,500 - $2,100,000 / 3,062,500 * 100 = 0.3142 or 31.42%
MS per unit = $3,062,500 - $2,100,000 / 140 = 6875 units
F)
Operating leverage = Contribution / Net operating income =
Operating leverage = 765,625/ 240,625 = 3.18
Particulars Amount Amount Sales (21875*140) $3,062,500 Direct materials (21,875 * 29) 634375 Direct labor (21,875 * 38) 831250 Variable exp Factory OH (21875*20) 437500 Sales salaries and commissions (21875*12) 262500 Miscellaneous selling expense (21875*1) 21875 Administrative expenses Supplies (21875*4) 87500 Miscellaneous administrative expense (21875*1) 21875 Total Variable Exp (2,296,875) Contribution Margin $765,625 Fixed Exp Factory overhead 200,000 Sales salaries and commissions 101,000 Advertising 44,000 Travel 8,000 Miscellaneous selling expense 7,800 Office and officers’ salaries 143,000 Supplies 8,000 Miscellaneous administrative expense 13,200 Total fixed exp (525,000) Net operating income (loss) $240,625Related Questions
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