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				$30
	Direct labor				20
	Factory overhead	$1,204,200			15
Selling expenses:
	Sales salaries and commissions	250,300			7
	Advertising	84,700
	Travel	18,800
	Miscellaneous selling expense	20,700			6
Administrative expenses:
	Office and officers' salaries	244,600
	Supplies	30,100			3
	Miscellaneous administrative expense	28,200			3
	Total	$1,881,600			$84

It is expected that 9,600 units will be sold at a price of $420 a unit. Maximum sales within the relevant range are 12,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7

Direct materialsIncome from operationsMiscellaneous administrative expenseSales salaries and commissionsSales			$- Select -
Cost of goods sold:
Direct materialsIncome from operationsSalesSuppliesTravel		$- Select -
AdvertisingDirect laborIncome from operationsLoss from operationsOffice and officers' salaries		- Select -
Factory overheadMiscellaneous administrative expenseSalesSuppliesTravel		- Select -
Cost of goods sold			fill in the blank 9749370b8fbaf99_9
Gross profit			$fill in the blank 9749370b8fbaf99_10
Expenses:
Selling expenses:
Factory overheadIncome from operationsMiscellaneous administrative expenseSales salaries and commissionsSales	$- Select -
AdvertisingCost of goods manufacturedDirect materialsOffice and officers' salariesSales	- Select -
Direct laborFactory overheadSalesSuppliesTravel	- Select -
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSupplies	- Select -
Total selling expenses		$fill in the blank 9749370b8fbaf99_19
Administrative expenses:
AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravel	$- Select -
Direct materialsFactory overheadSalesSuppliesTravel	- Select -
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSales salaries and commissionsSales	- Select -
Total administrative expenses		fill in the blank 9749370b8fbaf99_26
Total expenses			fill in the blank 9749370b8fbaf99_27
Income from operations			$fill in the blank 9749370b8fbaf99_28

2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank e29c40fa4023010_1 %

3. Determine the break-even sales in units and dollars.

Units	fill in the blank e29c40fa4023010_2 units
Dollars	fill in the blank e29c40fa4023010_3 units

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank e29c40fa4023010_4

5. What is the expected margin of safety in dollars and as a percentage of sales?

Dollars:	$fill in the blank e29c40fa4023010_5
Percentage: (Round to the nearest whole percent.)	fill in the blank e29c40fa4023010_6	%

6. Determine the operating leverage. Round to one decimal place. fill in the blank e29c40fa4023010_7