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:
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 2017 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 Variable Cost (per unit sold) Estimated Fixed Cost Production costs: Direct materials $22 Direct labor 14 Factory overhead $875,500 11 Selling expenses: Sales salaries and commissions Advertising 181,900 5 61,600 Travel 13,700 Miscellaneous selling expense 15,000 4 Administrative expenses: 177,800 Office and officers' salaries Supplies 21,900 2 Miscellaneous administrative expense 20,600 2 Total $1,368,000 $60 It is expected that 11,400 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 14,000 units. Required: It is expected that 11,400 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 14,000 units. Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales Cost of goods sold: Direct materials 2,736,000 250,800 Direct labor 159,600 Factory overhead 1,000,900 Cost of goods sold 1,411,300 Gross profit 1.324.700 Expenses: Selling expenses: Sales salaries and commissions 238,900 Advertising 61,600 13,700 Travel Miscellaneous selling expense 60,600 374,800 Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense 177,800 44,700 43,400 Total administrative expenses 265,900 Total expenses 640,700 Income from operations 684,000 Miscellaneous administrative expense 43,400 Total administrative expenses 265,900 Total expenses 640,700 Income from operations 684,000 2. What is the expected contribution margin ratio? Round to the nearest whole percent. 75 % 3. Determine the break-even sales in units and dollars. Units 22,800 units Dollars 1,824,00 units 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: 912,000 Percentage: (Round to the nearest whole percent.) 33 % 6. Determine the operating leverage. Round to one decimal place
