14 11 Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 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 $22 Direct labor Factory overhead $530,400 Selling expenses: Sales salaries and commissions 110,200 5 Advertising 37,300 Travel 8,300 Miscellaneous selling expense 9,100 Administrative expenses: Office and officers' salaries 107,700 Supplies 13,300 Miscellaneous administrative expense 12,500 Total $828,800 $60 It is expected that 9,620 units will be sold at a price of $200 a unit. Maximum sales within the relevant range are 12,000 units. 2 2 Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales 1,924,000 Cost of goods sold: Direct materials 211,640 134,680 Direct labor Factory overhead 530,400 X Total cost of goods sold 876,720 X Sales 1,924,000 211,640 Cost of goods sold: Direct materials Direct labor Factory overhead 134,680 530,400 x 876,720 x 1,047,280 x 110,200 X 37,300 Total cost of goods sold Gross profit Expenses: Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense 8,300 9,100 X 164,900 x 107,700 13,300 x 12,500 x Total administrative expenses 133,500 X Total expenses 298,400 x Operating income 748,880 X 2. What is the expected contribution margin ratio? Round to the nearest whole percent. 88 X % 3. Determine the break-even sales in units and dollars. Units X units Dollars 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: $ X % Percentage: (Round to the nearest whole percent.) 6. Determine the operating leverage. Round to one decimal place