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) $26 17 $438,700 13 91,200 6 30,800 Production costs: Direct materials Direct labor Factory overhead Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total 6,900 7,500 5 89,100 2 11,000 10,240 $685,440 3 $72 It is expected that 7,480 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 9,000 units. Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 Sales 1,795,200 194,480 Cost of goods sold: Direct materials Direct labor Factory overhead 127,160 535,940 857,580 Total cost of goods sold Gross profit Expenses: Selling expenses: Sales salaries and commissions Advertising 136,080 30,800 Travel 6,900 Miscellaneous selling expense 44,900 218,680 Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense 89,100 25,960 32,680 Total administrative expenses 147,740 Total expenses 366,420 Income from operations 571,200 2. What is the expected contribution margin ratio? Round to the nearest whole percent. 2 % 2. What is the expected contribution margin ratio? Round to the nearest whole percent. 2 % 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