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 Fixed Cost Estimated Variable Cost (per unit sold) Production costs $13 Direct materials Direct labor Factory overhead $501,400 Selling expenses: Sales salaries and commissions 104,200 35,300 7,800 8,600 Travel Miscellaneous selling expense Administrative expenses 101,800 12,500 11,760 $783,360 Office and officers' salaries Supplies Miscellaneous administrative Total expense $36 It is expected that 8,840 units will be sold at a price of $180 a unit. Maximum sales within the relevant range are 11,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Cost of goods sold: Cost of goods sold Gross profit Expenses: Selling expenses: Total selling expenses Administrative expenses Total administrative expenses Total expenses Income from operations 2. What is the expected contribution margin ratio? Round to the nearest whole percent 3. Determine the break-even sales in units and dollars Units Dollars 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? units units 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: Percentage: (Round to the nearest whole percent.) 6. Determine the operating leverage. Round to one decimal place. 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 Fixed Cost Estimated Variable Cost (per unit sold) Production costs $13 Direct materials Direct labor Factory overhead $501,400 Selling expenses: Sales salaries and commissions 104,200 35,300 7,800 8,600 Travel Miscellaneous selling expense Administrative expenses 101,800 12,500 11,760 $783,360 Office and officers' salaries Supplies Miscellaneous administrative Total expense $36 It is expected that 8,840 units will be sold at a price of $180 a unit. Maximum sales within the relevant range are 11,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Cost of goods sold: Cost of goods sold Gross profit Expenses: Selling expenses: Total selling expenses Administrative expenses Total administrative expenses Total expenses Income from operations 2. What is the expected contribution margin ratio? Round to the nearest whole percent 3. Determine the break-even sales in units and dollars Units Dollars 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? units units 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: Percentage: (Round to the nearest whole percent.) 6. Determine the operating leverage. Round to one decimal place
