Steamboat Co. expects to maintain the same inventories at the end of 2010 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 2010. A summary report of these estimates is as follows:

It is expected that 30,000 units will be sold at a price of $60 a unit. Maximum sales within the relevant range are 45,000 units. Instructions 1. Prepare an estimated income statement for 2010. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units. 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.

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 Estimated Estimated Variable Cost (per unit sold) Fixed Cost $15.00 10.00 4.50 $210,000 42,500 2.20 14,500 3500 2,500 1,80 70,000 0.75 6,000 1,75 11,000 $360.000 $36.00