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:

Line Item Description	Estimated Fixed Cost	Estimated Variable Cost (per unit sold)
Production costs:
Direct materials		$15
Direct labor		10
Factory overhead	$344,100	8
Selling expenses:
Sales salaries and commissions	71,500	3
Advertising	24,200
Travel	5,400
Miscellaneous selling expense	5,900	3
Administrative expenses:
Office and officers' salaries	69,900
Supplies	8,600	1
Miscellaneous administrative expense	8,000	2
Total	$537,600	$42

It is expected that 7,200 units will be sold at a price of $210 a unit. Maximum sales within the relevant range are 9,000 units.

Required:

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1. Prepare an estimated income statement for 20Y7.

Line Item Description	Amount	Amount	Amount
Direct materialsMiscellaneous administrative expenseOperating incomeSalesSales salaries and commissionsSales			$Sales
Cost of goods sold:
Direct materialsOperating incomeSalesSuppliesTravelDirect materials		$Direct materials
AdvertisingDirect laborLoss from operationsOffice and officers' salariesOperating incomeDirect labor		Direct labor
Factory overheadMiscellaneous administrative expenseSalesSuppliesTravelFactory overhead		Factory overhead
Total cost of goods sold			Total cost of goods sold
Gross profit			$Gross profit
Expenses:
Selling expenses:
Factory overheadMiscellaneous administrative expenseOperating incomeSalesSales salaries and commissionsSales salaries and commissions	$Sales salaries and commissions
AdvertisingCost of goods manufacturedDirect materialsOffice and officers' salariesSalesAdvertising	Advertising
Direct laborFactory overheadSalesSuppliesTravelTravel	Travel
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSuppliesMiscellaneous selling expense	Miscellaneous selling expense
Total selling expenses		$ Total selling expenses
Administrative expenses:
AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravelOffice and officers' salaries	$Office and officers' salaries
Direct materialsFactory overheadSalesSuppliesTravelSupplies	Supplies
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSales salaries and commissionsMiscellaneous administrative expense	Miscellaneous administrative expense
Total administrative expenses		Total administrative expenses
Total expenses			Total expenses
Operating income			$Operating income

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1. Use the data to compute the total costs. Remember that some of the costs have a fixed and a variable cost component.

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2. What is the expected contribution margin ratio? (Round to the nearest whole percent.) fill in the blank 1 of 1 %

3. Determine the break-even sales in units and dollars. Units fill in the blank 1 of 2 units Dollars fill in the blank 2 of 2$

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? fill in the blank 1 of 1$

5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars fill in the blank 1 of 2$ Percentage: (Round to the nearest whole percent.) fill in the blank 2 of 2%

6. Determine the operating leverage. (Round to one decimal place.) fill in the blank 1 of 1