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				$17
	Direct labor				12
	Factory overhead	$862,600			9
Selling expenses:
	Sales salaries and commissions	179,300			4
	Advertising	60,700
	Travel	13,500
	Miscellaneous selling expense	14,800			3
Administrative expenses:
	Office and officers' salaries	175,200
	Supplies	21,600			1
	Miscellaneous administrative expense	20,140			2
	Total	$1,347,840			$48

It is expected that 10,920 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 14,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

Belmain Co.
Estimated Income Statement
For the Year Ended December 31, 20Y7
			$fill in the blank 4d5c11fb9fdbfbc_2
Cost of goods sold:
		$fill in the blank 4d5c11fb9fdbfbc_4
		fill in the blank 4d5c11fb9fdbfbc_6
		fill in the blank 4d5c11fb9fdbfbc_8
Total cost of goods sold			fill in the blank 4d5c11fb9fdbfbc_9
Gross profit			$fill in the blank 4d5c11fb9fdbfbc_10
Expenses:
Selling expenses:
	$fill in the blank 4d5c11fb9fdbfbc_12
	fill in the blank 4d5c11fb9fdbfbc_14
	fill in the blank 4d5c11fb9fdbfbc_16
	fill in the blank 4d5c11fb9fdbfbc_18
Total selling expenses		$fill in the blank 4d5c11fb9fdbfbc_19
Administrative expenses:
	$fill in the blank 4d5c11fb9fdbfbc_21
	fill in the blank 4d5c11fb9fdbfbc_23
	fill in the blank 4d5c11fb9fdbfbc_25
Total administrative expenses		fill in the blank 4d5c11fb9fdbfbc_26
Total expenses			fill in the blank 4d5c11fb9fdbfbc_27
Operating income			$fill in the blank 4d5c11fb9fdbfbc_28

2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank 8a8358015fd4fb6_1 %

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

Units	fill in the blank 8a8358015fd4fb6_2 units
Dollars	$fill in the blank 8a8358015fd4fb6_3

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank 8a8358015fd4fb6_4

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

Dollars:	$fill in the blank 8a8358015fd4fb6_5
Percentage: (Round to the nearest whole percent.)	fill in the blank 8a8358015fd4fb6_6	%

6. Determine the operating leverage. Round to one decimal place. fill in the blank 8a8358015fd4fb6_7