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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 2014 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 2014. A summary report of these estimates is as follows:

See attachment

It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within therelevant rangeare 18,000 units.

1. Prepare an estimated income statement for 2014.

2. What is the expectedcontribution margin ratio?

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

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?

6. Determine the operating leverage.