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))