Contribution Margin, Break-Even Sales, Cost-Volume-ProfitChart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the endof 20Y7 as at the beginning of the year. The total of allproduction costs for the year is therefore assumed to be equal tothe cost of goods sold. With this in mind, the various departmentheads were asked to submit estimates of the costs for theirdepartments during the year. A summary report of these estimates isas follows:

		Estimated Fixed Cost			Estimated Variable Cost (per unit sold)
Production costs:
	Direct materials	—			$24
	Direct labor	—			16
	Factory overhead	$861,700			12
Selling expenses:
	Sales salaries and commissions	179,100			5
	Advertising	60,600			—
	Travel	13,500			—
	Miscellaneous selling expense	14,800			4
Administrative expenses:
	Office and officers' salaries	175,000			—
	Supplies	21,500			2
	Miscellaneous administrative expense	20,200			3
	Total	$1,346,400			$66

It is expected that 10,200 units will be sold at a price of $264a unit. Maximum sales within the relevant range are13,000 units.

Required:

1. Prepare an estimated incomestatement 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
Total 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
Operating income			$

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

2. What is the expected contributionmargin ratio? Round to the nearest whole percent.

3. Determine the break-even sales inunits and dollars.

Units	units
Dollars	$

4. Construct a cost-volume-profit charton your own paper. What is the break-even sales?

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

Dollars:	$
Percentage: (Round to the nearest wholepercent.)		%

6. Determine the operating leverage.Round to one decimal place.