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253 Chapter 5 Cost-Volume-Profit Analysis PR 5.6B Contribution margin, break-even sales, cost-volume-profit chart margin of safety, and operating leverage chart, Obj. 2, 3, 4, 5
253 Chapter 5 Cost-Volume-Profit Analysis PR 5.6B Contribution margin, break-even sales, cost-volume-profit chart margin of safety, and operating leverage chart, Obj. 2, 3, 4, 5 Imain Co. expects to maintain the same inventories at the end of 20 be equal to of the year. The total of all production costs for the year is therefore assumed to d to sub- asked to sub- as at the beginning the cost of goods sold. With this in mind, the various department heads were a mit estimates of the costs for their departments during the year. A su estimates is as follows: summary report of these Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs $50.00 Direct labor.. . . Factory overhead 30.00 6.00 Selling expenses: 350,000 4.00 340,000 116,000 4,000 2,300 Travel .. . 1.00 Administrative expenses: Office and officers' salaries 325,000 6,000 8,700 $1,152,000 4.00 1.00 $96.00 Miscellaneous administrative expense Total . . It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 18,000 units. Instructions 1. Prepare an estimated income statement for 20Y7. 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. What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place.) 5. 6. Determine the operating leverage
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