Baker Co. expects to maintain the same inventories at the end of 2012 as at the beginning

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Baker Co. expects to maintain the same inventories at the end of 2012 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 2012. A summary report of these estimates is as follows:

Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials... $30.00 Direct labor..

It is expected that 40,000 units will be sold at a price of $75 a unit. Maximum sales within the relevant range are 45,000 units.
1. Prepare an estimated income statement for 2012.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars.
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.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Accounting

ISBN: 9780538475006

24th Edition

Authors: Carl S Warren, James M Reeve, Jonathan Duchac

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