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	$722,500			15
Selling expenses:
	Sales salaries and commissions	150,200			7
	Advertising	50,800
	Travel	11,300
	Miscellaneous selling expense	12,400			6
Administrative expenses:
	Office and officers' salaries	146,800
	Supplies	18,100			3
	Miscellaneous administrative expense	16,860			3
	Total	$1,128,960			$84

It is expected that 9,360 units will be sold at a price of $280 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 materialsOperating incomeMiscellaneous administrative expenseSales salaries and commissionsSales			$- Select -
Cost of goods sold:
Direct materialsOperating incomeSalesSuppliesTravel		$- Select -
AdvertisingDirect laborOperating incomeLoss from operationsOffice and officers' salaries		- Select -
Factory overheadMiscellaneous administrative expenseSalesSuppliesTravel		- Select -
Total cost of goods sold			fill in the blank 42ce82036077057_9
Gross profit			$fill in the blank 42ce82036077057_10
Expenses:
Selling expenses:
Factory overheadOperating incomeMiscellaneous 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 42ce82036077057_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 42ce82036077057_26
Total expenses			fill in the blank 42ce82036077057_27
Operating income			$fill in the blank 42ce82036077057_28

2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank a6b308fe7061fff_1 %

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

Units	fill in the blank a6b308fe7061fff_2 units
Dollars	$fill in the blank a6b308fe7061fff_3

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank a6b308fe7061fff_4

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

Dollars:	$fill in the blank a6b308fe7061fff_5
Percentage: (Round to the nearest whole percent.)	fill in the blank a6b308fe7061fff_6	%

6. Determine the operating leverage. Round to one decimal place. fill in the blank a6b308fe7061fff_7