PR 19-6B
Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage
Obj. 2, 3, 4, 5Belmain 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:
It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 18,000 units.
Instructions
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Prepare an estimated income statement for 20Y7.
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What is the expected contribution margin ratio?
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Determine the break-even sales in units and dollars.
Answer Check Figure: 8,000 units
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Construct a cost-volume-profit chart indicating the break-even sales.
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What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place.)
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Determine the operating leverage.
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AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Insert Draw Page Layout Data Review View Formulas AA Share Z Comments . Insert UAG . LG Conditional Formatting Format as Table 2 Cell Styles E 29. Deinde v OA = $ % 9688 Ideas Sort & Filter Format Sensitivity X Find & Select Paste 271 BI U B AX fx J K L M N O P Q S T U W X Y Z 14 1. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 $ 2,880,000 $ 600,000 360,000 422,000 1,382,000 1,498,000 $ Sales Cost of goods sold: Direct materials Direct labor Factory overhead Cost of goods sold Gross profit Expenses: Seling expenses Sales salaries and commissions Advertising Travel Miscelaneous seling expense Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscelaneous administrative expense Total administrative expenses Tolal expenses Income from operations 388,000 116,000 4.000 14,300 $ 522,300 325,000 54,000 20,700 398,700 922,000 576,000 $ Contribution margin ratio: Sales $ 2,880,000 Units 160 X Unit Variable Cost $96 Variable costs Contribution margin Sales Contribution margin ratio $ 1,152,000 1,728,000 2,880,000 80.0% Pr. 19(5)-6B + Ready E C - + 100% AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Insert Draw Page Layout Data Review View Share Comments Formulas AA A Insert 2A O LG Conditional Formatting ing Format as Table 2 Cell Styles E 29. Deinde v Y = $ % - Ideas Sort & Filter Format Sensitivity X Find & Select Paste 271 B IU B V fx x K L M N O P Q S T U W X Y Z 51 3. Break-even sales: Fbed costs $ 1,152,000 Sale Price $240 - Unit Variable Cost $96 $144 8,000 Unit contribution margin Break-even sales (units) Sale price Break-even sales (dollars) 61 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. Units Sales $ Costs $ Cost-Volume-Profit Chart 2,000 4 000 6,000 8,000 10,000 12,000 14 000 16.000 18.000 Operating Loss Break-Even Point Sales and Costs Sales $ Costs $ 83 84 85 Operating Profit Area 88 ag 90 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Pr. 19(5)-6B + Ready B C - + 100% AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Data Review View Share Comments A LG Insert Draw Page Layout Formulas AA B IV Braw A AX fx E Conditional Formatting Format as Table 2 Cell Styles Insert Delete Format = $ ~ % - Sort & Filter Ideas X Find & Select Sensitivity Paste 271 90 0 2,000 4,000 6,000 8,000 10,000 12,000 Units 14,000 16,000 18,000 91 92 94 95 96 5. Margin of safety: Sale Prin 99 100 101 Expected sales Break-even point Margin of safety (in dollars) Expected sales Margin of safety (as a percentage of sales) 102 103 104 105 108 6 107 Operating leverage: Uri Ca 108 109 110 111 Contribution margin Income from operations Operating leverage 112 113 114 115 116 117 119 119 120 121 122 123 124 125 125 127 129 Pr. 19(5)-6B + Ready E C - + 100% AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Insert Draw Page Layout Data Review View Formulas AA Share Z Comments . Insert UAG . LG Conditional Formatting Format as Table 2 Cell Styles E 29. Deinde v OA = $ % 9688 Ideas Sort & Filter Format Sensitivity X Find & Select Paste 271 BI U B AX fx J K L M N O P Q S T U W X Y Z 14 1. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2017 $ 2,880,000 $ 600,000 360,000 422,000 1,382,000 1,498,000 $ Sales Cost of goods sold: Direct materials Direct labor Factory overhead Cost of goods sold Gross profit Expenses: Seling expenses Sales salaries and commissions Advertising Travel Miscelaneous seling expense Total selling expenses Administrative expenses: Office and officers' salaries Supplies Miscelaneous administrative expense Total administrative expenses Tolal expenses Income from operations 388,000 116,000 4.000 14,300 $ 522,300 325,000 54,000 20,700 398,700 922,000 576,000 $ Contribution margin ratio: Sales $ 2,880,000 Units 160 X Unit Variable Cost $96 Variable costs Contribution margin Sales Contribution margin ratio $ 1,152,000 1,728,000 2,880,000 80.0% Pr. 19(5)-6B + Ready E C - + 100% AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Insert Draw Page Layout Data Review View Share Comments Formulas AA A Insert 2A O LG Conditional Formatting ing Format as Table 2 Cell Styles E 29. Deinde v Y = $ % - Ideas Sort & Filter Format Sensitivity X Find & Select Paste 271 B IU B V fx x K L M N O P Q S T U W X Y Z 51 3. Break-even sales: Fbed costs $ 1,152,000 Sale Price $240 - Unit Variable Cost $96 $144 8,000 Unit contribution margin Break-even sales (units) Sale price Break-even sales (dollars) 61 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. Units Sales $ Costs $ Cost-Volume-Profit Chart 2,000 4 000 6,000 8,000 10,000 12,000 14 000 16.000 18.000 Operating Loss Break-Even Point Sales and Costs Sales $ Costs $ 83 84 85 Operating Profit Area 88 ag 90 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Pr. 19(5)-6B + Ready B C - + 100% AutoSave GFF ASS E : WRD FinMan 14e_PR 19(5)-6B Home Data Review View Share Comments A LG Insert Draw Page Layout Formulas AA B IV Braw A AX fx E Conditional Formatting Format as Table 2 Cell Styles Insert Delete Format = $ ~ % - Sort & Filter Ideas X Find & Select Sensitivity Paste 271 90 0 2,000 4,000 6,000 8,000 10,000 12,000 Units 14,000 16,000 18,000 91 92 94 95 96 5. Margin of safety: Sale Prin 99 100 101 Expected sales Break-even point Margin of safety (in dollars) Expected sales Margin of safety (as a percentage of sales) 102 103 104 105 108 6 107 Operating leverage: Uri Ca 108 109 110 111 Contribution margin Income from operations Operating leverage 112 113 114 115 116 117 119 119 120 121 122 123 124 125 125 127 129 Pr. 19(5)-6B + Ready E C - + 100%
