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 $26 Direct labor 17 Factory overhead $340,100 13 Selling expenses: Sales salaries and commissions 70,700 6 Advertising 23,900 Travel 5,300 Miscellaneous selling expense 5,800 5 Administrative expenses: Office and officers' salaries 69,100 Supplies 8,500 2 Miscellaneous administrative expense 7,960 3 Total $531,360 $72 It is expected that 6,560 units will be sold at a price of $288 a unit. Maximum sales within the relevant range are 8,000 units. Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales Cost of goods sold: Direct materials Direct labor Factory overhead Total cost of goods sold Gross profit Expenses: Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense o Total selling expenses Administrative expenses: Office and officers' salaries Administrative expenses: Office and officers' salaries $ Supplies Miscellaneous administrative expense Total administrative expenses Total expenses Operating income 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. 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 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? 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 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
