Soldner Health Care Products Inc.

expects to maintain the same inventories at

the end of 2010 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 2010. 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
Selling expenses:
Sales salaries and commissions
Advertising
Travel
Miscellaneous selling expense
Administrative expenses:
Office and officerssalaries
Supplies
Miscellaneous administrative expense
Total

$318,000

$18.00
12.00
9.00

65,500
22,500
5,000
5,500

4.00

3.50

65,000
8,000
10,500
$500,000

1.50
2.00
$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.