Question

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain 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: Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials $24 Direct labor 16 Factory overhead $625,200 12 Selling expenses: Sales salaries and commissions 129,900 5 Advertising 44,000 Travel 9,800 Miscellaneous selling expense 10,700 4 Administrative expenses: Office and officers' salaries 127,000 Supplies 15,600 2 Miscellaneous administrative expense 14,600 3 Total $976,800 $66 It is expected that 7,400 units will be sold at a price of $330 a unit. Maximum sales within the relevant range are 9,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Sales $ 2,442,000 Cost of goods sold: Direct materials $ 177,600 Direct labor 118,400 Factory overhead 714,000 Cost of goods sold 1,010,000 Gross profit $ 1,432,000 Expenses: Selling expenses: Sales salaries and commissions $ 166,900 Advertising 44,000 Travel 9,800 Miscellaneous selling expense 40,300 Total selling expenses $ 261,000 Administrative expenses: Office and officers' salaries $ 127,000 Supplies 30,400 Miscellaneous administrative expense 36,800 Total administrative expenses 194,200 Total expenses 455,200 Income from operations $ 976,800 2.

What is the expected contribution margin ratio? Round to the nearest whole percent. % 3. Determine the break-even sales in units and dollars. Units units Dollars units 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: $ Percentage: (Round to the nearest whole percent.) % 6. Determine the operating leverage. Round to one decimal place.

Answer 1