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Tpy6a [65]
3 years ago
9

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:
Question not attempted.
1 Estimated Fixed Cost Estimated Variable Cost (per unit sold)
2 Production costs:
3 Direct materials — $46.00
4 Direct labor — 40.00
5 Factory overhead $200,000.00 20.00
6 Selling expenses:
7 Sales salaries and
commissions 110,000.00 8.00
8 Advertising 40,000.00 —
9 Travel 12,000.00 —
10 Miscellaneous selling
expense 7,600.00 1.00
11 Administrative expenses:
12 Office and officers’ salaries 132,000.00 —
13 Supplies 10,000.00 4.00
14 Miscellaneous administrative
expense 13,400.00 1.00
15 Total $525,000.00 $120.00
It is expected that 21,875 units will be sold at a price of $160 a unit. Maximum sales within the relevant range
The range of activity over which changes in cost are of interest to management.
are 27,000 units.
Required:
A. Prepare an estimated income statement for 2016. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.
B. What is the expected contribution margin ratio
The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.
?
C. Determine the break-even sales in units and dollars.
D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
E. What is the expected margin of safety in dollars and as a percentage of sales?
F. Determine the operating leverage. Round to one decimal place.
Business
1 answer:
iogann1982 [59]3 years ago
5 0

Answer:

Wolsey Industries Inc.

A. Estimated Income Statement for year ended December 31, 2016

Sales Revenue                                           $4,320,000

Cost of goods sold                                      3,062,000

Gross profit                                                $1,258,000

Expenses:

7. Sales salaries and  commissions 326,000

8 Advertising                                      40,000

9 Travel                                               12,000

10 Miscellaneous selling                    34,600

11 Administrative expenses:

12 Office and officers’ salaries       132,000

13 Supplies                                       118,000

14 Miscellaneous administrative      40,400  $703,000

Net income                                                    $555,000

B. Expected Contribution Margin ratio = 25%

C. Break-even sales in units and dollars:

Sales in units:  13,125

Sales in dollars:  $2,100,000

D.  The break-even sales is 13,125 units and $2,100,000

E. The expected margin of safety:

Sales dollars:   $2,220,000

Percentage of Sales: 48.6% ($2,100,000/$4,320,000)

F. Operating leverage: = Contribution/Net operating income

= $1,080,000/$555,000 = 1.95

Explanation:

a) Data and Calculations:

1                                                 Estimated           Estimated

                                                 Fixed Cost     Variable Cost (per unit sold)

2 Production costs:

3 Direct materials                             —                  $46.00

4 Direct labor                                    —                    40.00

5 Factory overhead                $200,000.00          20.00

6 Selling expenses:

7 Sales salaries and

commissions                               110,000.00            8.00

8 Advertising                               40,000.00             —

9 Travel                                        12,000.00             —

10 Miscellaneous selling

expense                                         7,600.00             1.00

11 Administrative expenses:

12 Office and officers’ salaries 132,000.00               —

13 Supplies                                  10,000.00             4.00

14 Miscellaneous administrative

expense                                      13,400.00              1.00

15 Total                                 $525,000.00       $120.00

Selling price per unit = $160

Sales volume = 27,000 units

Sales revenue = $4,320,000 ($160 * 27,000)

Variable production cost = $106 per unit

Total variable production costs = $2,862,000 ($106 * 27,000)

Fixed production cost =                     200,000

Total production cost =                $3,062,000

                                                   Total          Per Unit

Sales revenue =                    $4,320,000    $160

Variable production costs = $2,862,000      106

Variable expenses                     378,000         14

Total variable costs              $3,240,000    $120

Contribution =                       $1,080,000      $40

Contribution margin ratio = 25% ($40/$160 * 100)

Total fixed costs:

Production costs = $200,000

Selling and admin = 325,000

Total fixed costs = $525,000

Break-even point = Fixed costs/Contribution margin per unit

= $525,000/$40 = 13,125

Break-even point in dollars = $525,000/25% = $2,100,000

7. Sales salaries and  commissions 326,000  (110,000.00 + (27,000 * 8.00))

8 Advertising                                      40,000

9 Travel                                               12,000

10 Miscellaneous selling

expense                                             34,600 (7,600.00 + (27,000 * 1.00))

11 Administrative expenses:

12 Office and officers’ salaries       132,000

13 Supplies                                       118,000 (10,000.00 + (27,000 * 4.00))

14 Miscellaneous administrative

expense                                          40,400 (13,400.00 + (27,000 * 1.00))

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Answer:

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"To meet the customer's investment objective of tax advantaged income, the BEST recommendation is for the customer to:"
marishachu [46]

Customer Name: Jack and Jill Customer

Ages: 62 and 57

Marital Status: Married - 39 years

Dependents: None

Occupations: Jack - Manufacturing Manager - Dyno-Mite Corp.

Jill - Marketing Consultant - Self Employed

Household Income: $140,000 Joint Income

($100,000 for Jack and $40,000 for Jill)

Net Worth: $1,100,000 (excluding residence)

Own Home: Yes $420,000 Value, No Mortgage

Investment Objectives: Income / Tax Advantaged

Risk Tolerance: Moderate

Investment Time Horizon: 25 years

Investment Experience: 30 years

Tax Bracket: 30%

Current Portfolio Composition: Cash in Bank: $30,000

Growth Fund: $50,000

Variable Annuity: $50,000

Growth Stocks: $150,000

Retirement Accounts:

Jack's IRA: $100,000 invested in growth stocks

Jack's 401(k): $600,000 invested in Dyno-Mite Corp. stock

Jack's 529 Plan for Grandchild: $20,000 in growth mutual fund

To meet the customer's investment objective of tax advantaged income, the BEST recommendation is for the customer to:

A. immediately liquidate the entire Dyno-Mite position and invest the proceeds in high yield bonds

B. set a minimum and maximum threshold price to liquidate as much of the Dyno-Mite stock as the customer will permit, and invest the proceeds in high yielding common and preferred stocks

C. liquidate the IRA without penalty since Jack is past age 59 1/2, and use the proceeds to buy corporate income bonds

D. consider early retirement, since Jack is old enough to receive Social Security as a means of supplementing income

Answer:

B. set a minimum and maximum threshold price to liquidate as much of the Dyno-Mite stock as the customer will permit, and invest the proceeds in high yielding common and preferred stocks

Explanation:

Given that, the customer has a "moderate" risk tolerance level and dividend income is at the moment taxed at the preferential rate of 15%, therefore, it is expected that investments in high yielding common and preferred stocks will meet the customer's objective of tax-advantaged income.

Hence, the right answer is Option B. set a minimum and maximum threshold price to liquidate as much of the Dyno-Mite stock as the customer will permit, and invest the proceeds in high yielding common and preferred stocks

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Answer:

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Year 3:

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