. PR 21-6A Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Blythe Industries Inc. expects to maintain the same inventories at the end of 2012 as at the beginning of the year. The total of all production costs for the year is therefore as sumed 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 2012. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $30 Direct labor 20 Factory overhead $340,000 11 Selling expenses Sales salaries and commissions, 80,000 Advertising 32,000 Travel 8.000 Miscellaneous selling expense 7.600 Administrative expenses: Office and officers salaries 120,000 Supplies 8,000 Miscellaneous administrative expense 4.400 2 Total $600.000 $75 5 5 2 It is expected that .000 units will be sold at a price of $200 a unit Maximum sales within the relevant range are 9,000 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 o. Determine the operating leverage 1. BLYTHE INDUSTRIES INC. 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 Pt. 21 GA Miscellaneous administrative expense Total administrative expenses Total expenses Income from operations 2 Contribution margin ratio. Sales Units x Unit Variable Cost Variable costs Contribution margin Sales Contribution margin ratio 3. Break-even sales: Fixed costs Sale Price Unit Variable Cost Unit contribution margin Break-even sales (units) Sale nire Pr. 21-6A Algnment Mint A D Sale Price Ut Variable Cost Unt contbution mang Breaks (unsts] Sale price Brak en sales (dollars) For each unit level of sales, enter the total sales dollars and total costs. The chart will be player Ahor all points are plotted, grab and move the labels provided at the identity each are Costs Cost-Volume-Profit Chart 1.00 2,000 3,000 4000 5 000 5000 7 000 0.000 1,000 5. Units Margin of safety: Sale Price Expected sales Break-even point Margin of safety (in dollars) Expected sales Margin of safety (as a percentage of sales) 6. Operating leverage Unit CM $ Units Contribution margin Income from operations Operating leverage