OBJ. 2, 3, 4, 5 3.30,000 PR 21-6B Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Baker Co, expects to maintain the same inventories at the end of 2012 as at the begin ning 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 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 1003 asked to submit estimates of the costs for their departments during 2012. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs Direct materials $30.00 Direct labor 15.00 Factory overhead $240,000 5.00 Selling expenses Sales salaries and commissions 43.000 3.00 Advertising 12.000 Travel 4.200 Miscellaneous selling expense 2.300 2.50 Administrative expenses Office and officers' salaries. 110,000 Supplies... 16,000 2.50 Miscellaneous administrative expense... 22.500 2.00 Total $450,000 $60.00 It is expected that 40,000 units will be sold at a price of $75 a unit. Maximum sales within the relevant range are 45,000 units. Instructions 1. Prepare an estimated income statement for 2012, 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating 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. ructions swers are entered in the cells with gray backgrounds Ils with non-gray backgrounds are protected and cannot be edited. asterisk (*) will appear to the right of an incorrect entry BAKER CO. Estimated Income Statement For the Year Ended December 31, 2012 Sales Cost of goods sold: Direct materials Direct labor Factory overhead 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 Income from operations Contribution margin ratio: Sales Units Unit Variable Cost Variable costs Contribution margin Sales Contribution margin ratio Break-even sales: Fixed costs Sale Price - Unit Variable Cost Unit contribution margin Break-even sales (units) Sale price Break-even sales (dollars) 4. For each unit level of sales, enter the total sales dollars and total costs. The chart at right will be plotted as you enter the amounts. After all points are plotted, grab and move the labels provided at the left to identify each area Sales 5 Costs $ Cost-Volume-Profit Chart Units 0 5.000 10 000 15,000 20.000 25.000 30.000 35.000 40.000 45.000 Co Sal 5000 10000 15000 10000 35000 40000 45000 Operating Profit Aren Units Margin of safety Bale Price Expected sales Break even point Margin of safety on dollars) Expected sales Margin of safety as a percentage of o) Operating leverage: Unit CMS Units Contribution margin Income from operations Operating leverage
