Production Costs M4 Inc. expects to maintain the same inventories at the end of 2020 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: Estimated Fixed Cost Estimated Variable Cost (per unit sold) S42 22 12 $12,800 6 Production costs: Direct materials Direct labor Factory overhead Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total 8,500 8,800 2,800 1,500 5 22,500 2,200 1,740 $60,840 1 3 $91 It is expected that 10,000 units will be sold at a price of $130 a unit. Maximum sales within the relevant range are 12,000 units. Instructions 1. Prepare an estimated income statement for 2020. Operating Income = $329,160 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. $202,800 4. What is the expected margin of safety in dollars and as a percentage of sales? 84.4% 5. Determine the operating leverage. M4 Inc. Estimated Income Statement For the Year Ended December 31, 2020 Sales Cost of goods sold: Direct materials Direct labor Factory overhead Cost of goods sold Gross profit Expenses: Selling expenses Sales salaries Advertising Travel Misc. selling expense Administrative expenses: Office and officers' salaries Supplies Misc. admin expense Total administrative expense 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) 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) Operating leverage: Unit CMS Units Contribution margin Income from operations Operating leverage