Question

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	—			$17
	Direct labor	—			12
	Factory overhead	$840,500			9
Selling expenses:
	Sales salaries and commissions	174,700			4
	Advertising	59,100			—
	Travel	13,100			—
	Miscellaneous selling expense	14,400			3
Administrative expenses:
	Office and officers' salaries	170,700			—
	Supplies	21,000			1
	Miscellaneous administrative expense	19,780			2
	Total	$1,313,280			$48

It is expected that 10,640 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 13,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

Belmain Co.
Estimated Income Statement
For the Year Ended December 31, 20Y7
			$
Cost of goods sold:
		$
Total cost of goods sold
Gross profit			$
Expenses:
Selling expenses:
	$
Total selling expenses		$
Administrative expenses:
	$
Total administrative expenses
Total expenses
Operating income			$

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	$

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