Karmin manufacturing inc., (KMI), makes cars and has just decided to start manufacturing a new model, to be called Queen Herbie (QH), based on the Karman Ghia and VW bug, and is setting up a new division to make the new model. The budget for the first year for the new division follows. The two main parts of the new division will be the office administration run by Amy, and the factory plant run by Renee. Amy will have a monthly salary of $ 14,000 and the office building will be rented for a monthly rent of $ 4,000. The office and selling staff will receive a monthly salary of $ 22,000 in total and the selling staff will also receive a $ 150 commission per each car sold. There will be a shipping cost of $ 450 per car.

Since it is the first year of operations, there will be no beginning inventory, and the company is planning to produce only the units ordered, and thus there will be no ending inventory either. For simplicity, we can assume that the budgeted fixed costs for the plant will be the amounts paid out for the year and that the normal capacity for the plant will be the expected order level. The factory will be rented for $ 60,000 annually, and the equipment (shifted from other parts of KMI) will have an annual depreciation of $ 45,000. Renees salary for the year will be $ 152,000 and factory insurance for the year will be $ 8,000. Each unit of the new QH model will require $ 11,000 of metal, $ 2,000 of glass, and paint costing $ 800. The assembly line employees are paid by the hour $ 35 an hour, and the new QH model will require about 220 hours of labor time to assemble each car. The miscellaneous factory costs are made up of electricity and lubricants for the equipment at about $ 500 (electricity) and $ 300 (equipment lubricants) per car. The estimated sick pay and vacation pay for the assembly workers will be about $ 25,000 annually, and the wasted raw materials used in the production process should be about $ 100 per car manufactured.

The new QH model will sell for $ 34,000 each, and the estimated order quantity (the amount that is budgeted as sales for the first year) is 120 units.

Write up a budgeted income statement for the new division for the first year, using both the contribution margin format and the gross margin format. What is the breakeven level of sales in units and in revenues, and what is the margin of safety?