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				$15
	Direct labor				10
	Factory overhead	$139,200			8
Selling expenses:
	Sales salaries and commissions	28,900			3
	Advertising	9,800
	Travel	2,200
	Miscellaneous selling expense	2,400			3
Administrative expenses:
	Office and officers' salaries	28,300
	Supplies	3,500			1
	Miscellaneous administrative expense	3,260			2
	Total	$217,560			$42

It is expected that 8,880 units will be sold at a price of $84 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

Sales			$___
Cost of goods sold:
Direct materials		$___
Direct labor		___
Factory overhead		____
Cost of goods sold			___
Gross profit			$____
Expenses:
Selling expenses:
Sales salaries and commissions	$____
Advertising	____
Travel	____
Miscellaneous selling expense	____
Total selling expenses		$___
Administrative expenses:
Office and officers' salaries	$____
Supplies	___
Miscellaneous administrative expense	___
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	___ units
Dollars	____ 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:	$____
Percentage: (Round to the nearest whole percent.)	____	%

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