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 Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials $15 Direct labor 10 Factory overhead $271,000 8 Selling expenses: Sales salaries and commissions 56,300 Advertising 19,100 w II w Travel 4,200 Miscellaneous selling expense 4,700 Administrative expenses: Office and officers' salaries 55,000 6,800 1 Supplies Miscellaneous administrative expense 6,260 2 Total $423,360 $42 It is expected that 7,560 units will be sold at a price of $168 a unit. Maximum sales within the relevant range are 9,000 units. Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales 1,270,080 Cost of goods sold: Direct materials 113,400 Direct labor 75,600 Factory overhead 331,480 Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales 1,270,080 Cost of goods sold: Direct materials Direct labor 113,400 75,600 Factory overhead 331,480 Total cost of goods sold 520,480 749,600 Gross profit Expenses: Selling expenses: Sales salaries and commissions 78,980 Advertising 19,100 4,200 Travel Miscellaneous selling expense 27,380 V 129,660 Total selling expenses Administrative expenses: Office and officers' salaries 55,000 Supplies 14,360 Miscellaneous administrative expense 21,380 Total administrative expenses 90,740 Total expenses 220,400 Operating income 529,200 Feedback Check My Work 1. Use the data to compute the total costs. Remember that some of the costs have a fixed and a variable cost component. Check My Work 1. Use the data to compute the total costs. Remember that some of the costs have a fixed and a variable cost component. 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 10,080 X units Dollars 564,480 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: Percentage: (Round to the nearest whole percent.) 6. Determine the operating leverage. Round to one decimal place. % Feedback Check My Work 2. Sales minus variable cost equals contribution margin. Contribution margin divided by sales equals contribution margin ratio. 3. Fixed costs divided by unit contribution margin equals break-even sales in units. Break-even units times unit sale price equals break-even dollars. 4. Draw lines for total costs and total sales. The two lines should intersect at the break-even point. 5. (Sales minus sales at break-even point) divided by sales equals margin of safety. 6. Contribution margin divided by the income from operations equals operating leverage. Feedback Check My Work Partially correct