Financial and Managerial Accounting: P19(04)-6A Soldner Health Care Products Inc. expects

Financial and Managerial Accounting

P19(04)-6A
Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2010 as of 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 mind, the various department heads were asked to submit estimates of the cost for their departments during 2010. A summary report of these estimates is as follows:
Estimated Fixed Costs Estimated Variable Cost (per unit sold)
Production costs: - 18.00
Direct materials - 12.00
Direct labor 318,000 9.00
Factory overhead
Selling expenses:
Sales salaries and commissions 65,500 4.00
Advertising 22,500 -
Travel 5,000 -
Miscellaneous selling expense 5,500 3.50
Administrative expenses:
Office and office salaries 65,000 -
Supplies 8,000 1.50
Miscellaneous administrative expense 10,500 2.00
Total 500,000 50.00
It is expected that 20,000 units will be sold at a price of $100 a unit. Maximum sales within the relevant range are 25,000 units.

Instructions:
1. Prepare an estimated income statement for 2010.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units.
4. Construct a cost-volume-profit chart indicating the break-even sales.
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage.
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