M4 Inc. expects to maintain the same inventories at the end of 2020 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: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $42 22 Direct labor $12,800 12 Factory overhead Selling expenses: 8,500 8,800 2,800 Sales salaries and commissions Advertising Travel 1.500 411n

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Production Costs
M4 Inc. expects to maintain the same inventories at the end of 2020 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:
Estimated
Estimated
Variable Cost
Fixed Cost
(per unit sold)
Production costs:
Direct materials
$42
Direct labor
22
Factory overhead
$12,800
12
Selling expenses:
Sales salaries and commissions
8,500
Advertising
8,800
Travel
2,800
Miscellaneous selling expense
1,500
Administrative expenses:
Office and officers' salaries
22,500
Supplies
Miscellaneous administrative expense
2,200
1,740
Total
$60,840
$91
It is expected that 10,000 units will be sold at a price of $130 a unit. Maximum sales within the relevant
range are 12,000 units.
Instructions
1. Prepare an estimated income statement for 2020. Operating Income = $329,160
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars. $202,800
4. What is the expected margin of safety in dollars and as a percentage of sales? 84.4%
5. Determine the operating leverage.
M. Baker
Page 1
W
近
Transcribed Image Text:Production Costs M4 Inc. expects to maintain the same inventories at the end of 2020 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: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $42 Direct labor 22 Factory overhead $12,800 12 Selling expenses: Sales salaries and commissions 8,500 Advertising 8,800 Travel 2,800 Miscellaneous selling expense 1,500 Administrative expenses: Office and officers' salaries 22,500 Supplies Miscellaneous administrative expense 2,200 1,740 Total $60,840 $91 It is expected that 10,000 units will be sold at a price of $130 a unit. Maximum sales within the relevant range are 12,000 units. Instructions 1. Prepare an estimated income statement for 2020. Operating Income = $329,160 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. $202,800 4. What is the expected margin of safety in dollars and as a percentage of sales? 84.4% 5. Determine the operating leverage. M. Baker Page 1 W 近
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