Contribution Margin, Break-Even Sales,Cost-Volume-Profit Chart,Margin of Safety, andOperating 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:

Est. Fix. Cost Est. Variable Cost (Per unit sold)

Production costs:

Direct materials $30

Direct labor 20

Factory overhead $954,800 15

Selling expenses:

Sales salaries and commissions 198,400 7

Advertising 67,100

Travel 14,900

Miscellaneous selling expense 16,400 6

Administrative expenses:

Office and officers' salaries 193,900

Supplies 23,900 3

Miscellaneous administrative expense 22,440 3

Total $1,491,840 $84

It is expected that 8,140 units will be sold at a price of $420 a unit. Maximum sales within therelevant rangeare 10,000 units.

Required:

1.Prepare an estimated income statement for 20Y7.

Belmain Co.Estimated Income StatementFor the Year Ended December 31, 20Y7Sales

$Cost of goods sold:Direct materials

$Direct labor

Factory overhead

Total cost of goods soldGross profit$Expenses:Selling expenses:Sales

$Advertising

Travel

Miscellaneous selling expense

Total selling expenses$Administrative expenses:Office and officers' salaries

$Supplies

Miscellaneous selling expense

Total administrative expensesTotal expensesIncome from operations$

2.What is the expectedcontribution margin ratio? Round to the nearest whole percent.

%

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

UnitsunitsDollarsunits

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.