Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 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 20Y8. A summary report of these estimates is as follows:

Estimated Fixed Cost Estimated Variable Cost (per unit sold)Production costs: Direct materials $ 8.00 Direct labor 3.00 Factory overhead$ 200,000 1.50 Selling expenses: Advertising1,450,000 Sales salaries and commissions93,000 1.85 Travel340,000 Miscellaneous selling expense2,000 0.10 Administrative expenses: Office and officers' salaries300,000 Supplies10,000 0.50 Miscellaneous administrative expense5,000 0.05 Total$2,400,000 $15.00

It is expected that 400,000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500,000 units.

Instructions:

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1. Prepare an estimated income statement for 20Y8.

Direct laborDirect materialsFactory overheadSalesSales salaries and commissions $- Select -Cost of goods sold: AdvertisingDirect materialsSalesSuppliesTravel $- Select - Direct laborMiscellaneous administrative expenseOffice and officers' salariesSalesTravel - Select - Factory overheadMiscellaneous administrative expenseSalesSuppliesTravel - Select - Cost of goods sold fill in the blank b9f203f81012fa1_9Gross profit $fill in the blank b9f203f81012fa1_10Expenses: Selling expenses: AdvertisingFactory overheadIncome from operationsMiscellaneous administrative expenseSales$- Select - Cost of goods manufacturedDirect materialsMarketingOffice and officers' salariesSales salaries and commissions- Select - Direct laborFactory overheadSalesSuppliesTravel- Select - Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSupplies- Select - Total selling expenses $fill in the blank b9f203f81012fa1_19 Administrative expenses: AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravel$- Select - Direct materialsFactory overheadSalesSuppliesTravel- Select - Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSales salaries and commissionsSales- Select - Total administrative expenses fill in the blank b9f203f81012fa1_26 Total expenses fill in the blank b9f203f81012fa1_27Operating income $fill in the blank b9f203f81012fa1_28

Question Content Area

2. What is the expected contribution margin ratio? fill in the blank

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

4. Construct a cost-volume-profit chart on your own paper.

5. Determine the operating leverage. Round your answer to one decimal place. fill in the blank