1. 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	$322,600			8
   Selling expenses:
   	Sales salaries and commissions	67,000			3
   	Advertising	22,700
   	Travel	5,000
   	Miscellaneous selling expense	5,500			3
   Administrative expenses:
   	Office and officers' salaries	65,500
   	Supplies	8,100			1
   	Miscellaneous administrative expense	7,600			2
   	Total	$504,000			$42

   It is expected that 12,000 units will be sold at a price of $105 a unit. Maximum sales within the relevant range are 15,000 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._________?