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: |
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|
3 |
Direct materials |
— |
$56.00 |
|
4 |
Direct labor |
— |
34.00 |
|
5 |
Factory overhead |
$188,000.00 |
20.00 |
|
6 |
Selling expenses: |
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|
7 |
Sales salaries and commissions |
102,000.00 |
6.00 |
|
8 |
Advertising |
39,000.00 |
— |
|
9 |
Travel |
12,000.00 |
— |
|
10 |
Miscellaneous selling expense |
7,400.00 |
1.00 |
|
11 |
Administrative expenses: |
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|
12 |
Office and officers’ salaries |
141,200.00 |
— |
|
13 |
Supplies |
8,000.00 |
2.00 |
|
14 |
Miscellaneous administrative expense |
13,600.00 |
1.00 |
|
15 |
Total |
$511,200.00 |
$120.00 |
It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 25,825 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? |
| C. | Determine the break-even sales in units and dollars. Round your answers to the nearest whole number. |
| 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? Round your answers to the nearest whole number. |
| F. | Determine the operating leverage. Round to one decimal place. |
Income Statement
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.
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Wolsey Industries Inc. |
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Estimated Income Statement |
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For the Year Ended December 31, 2016 |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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9 |
Selling expenses: |
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10 |
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11 |
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12 |
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13 |
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14 |
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15 |
Administrative expenses: |
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16 |
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17 |
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18 |
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19 |
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20 |
Total expenses |
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21 |
Additional Questions
B. What is the expected contribution margin ratio?
C. Determine the break-even sales in units and dollars. Start by using the contribution margin ratio (part B.) and then round your answers to the nearest whole number.
| Units | units |
| Dollars | $ |
D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$
Final Questions
E. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.
| Dollars | $ |
| Percentage |
F. Determine the operating leverage. Round to one decimal place.
In: Accounting
Income statement data for Winthrop Company for two recent years ended December 31 are as follows:
Question not attempted.
|
1 |
Current Year |
Previous Year |
|
|
2 |
Sales |
$1,836,800.00 |
$1,640,000.00 |
|
3 |
Cost of goods sold |
1,556,442.00 |
1,402,200.00 |
|
4 |
Gross profit |
$280,358.00 |
$237,800.00 |
|
5 |
Selling expenses |
$79,800.00 |
$70,000.00 |
|
6 |
Administrative expenses |
48,840.00 |
44,000.00 |
|
7 |
Total operating expenses |
$128,640.00 |
$114,000.00 |
|
8 |
Income before income tax |
$151,718.00 |
$123,800.00 |
|
9 |
Income tax expense |
12,300.00 |
8,200.00 |
|
10 |
Net income |
$139,418.00 |
$115,600.00 |
| A. | Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B. |
What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.
Solution
|
What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.
The net income for Winthrop Company increased by approximately ____% this year. This increase was the combined result of an increase in sales of ____% and lower percentage increase in cost of goods sold.
The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.
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