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:
	Direct materials				$28
	Direct labor				19
	Factory overhead	$1,517,600			14
Selling expenses:
	Sales salaries and commissions	315,400			6
	Advertising	106,700
	Travel	23,700
	Miscellaneous selling expense	26,100			6
Administrative expenses:
	Office and officers' salaries	308,300
	Supplies	37,900			2
	Miscellaneous administrative expense	35,500			3
	Total	$2,371,200			$78

It is expected that 11,400 units will be sold at a price of $390 a unit. Maximum sales within the relevant range are 14,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.

3. Determine the break-even sales in units and 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:	$fill in the blank
Percentage: (Round to the nearest whole percent.)

6. Determine the operating leverage. Round to one decimal place.