Chapter 19 - Final Problem

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2014 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 2014. A summary report of these estimates is as follows:

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Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Soldner Health Care Products Inc. expects to maintain the same inventories at the end of 2014 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 2014. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials Direct labor Factory overhead $15 10 8 $146,200 Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense 30,400 10,300 2,300 2,500 3 Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total 29,700 3,700 3,380 $228,480 2 $42 It is expected that 8,840 units will be sold at a price of $84 a unit. Maximum sales within the relevant range are 11,000 units