Question

1. Sales less variable costs and variable selling and administrative expenses.Contribution Margin, Break-Even Sales, A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.Cost-Volume-Profit Chart, Indicates the possible decrease in sales that may occur before an operating loss results.Margin of Safety, and A measure of the relative mix of a business's variable costs and fixed costs, computed as contribution margin divided by operating income.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				$50.00
   	Direct labor				30.00
   	Factory overhead	$350,000			6.00
   Selling expenses:
   	Sales salaries and commissions	340,000			4.00
   	Advertising	116,000
   	Travel	4,000
   	Miscellaneous selling expense	2,300			1.00
   Administrative expenses:
   	Office and officers' salaries	325,000
   	Supplies	6,000			4.00
   	Miscellaneous administrative expense	8,700			1.00
   	Total	$1,152,000			$96.00

   It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within the The range of activity over which changes in cost are of interest to management.relevant range are 18,000 units.

   Required:

   1. Prepare an estimated income statement for 20Y7.

   Belmain Co.
   Estimated Income Statement
   For the Year Ended December 31, 20Y7
   Direct materials Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales			$
   Cost of goods sold:
   Direct materials Income from operations Sales Supplies Travel		$
   Advertising Direct labor Income from operations Loss from operations Office and officers' salaries
   Factory overhead Miscellaneous administrative expense Sales Supplies Travel
   Total cost of goods sold
   Gross profit			$
   Expenses:
   Selling expenses:
   Factory overhead Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales	$
   Advertising Cost of goods manufactured Direct materials Office and officers' salaries Sales
   Direct labor Factory overhead Sales Supplies Travel
   Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales Supplies
   Total selling expenses		$
   Administrative expenses:
   Advertising Direct labor Office and officers' salaries Sales salaries and commissions Travel	$
   Direct materials Factory overhead Sales Supplies Travel
   Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales salaries and commissions Sales
   Total administrative expenses
   Total expenses
   Income from operations			$

   2. What is the expected The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.contribution margin ratio?

   %

   3. Determine the break-even sales in units and dollars.

   Units	units
   Dollars	$1,800,000 $1,920,000 $2,100,000 $2,250,000

   4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
   

   • $1,800,000
   • $1,920,000
   • $2,100,000
   • $2,250,000

   5. What is the expected margin of safety in dollars and as a percentage of sales?

   Dollars	$
   Percentage (If required, round the percent to one decimal place, e.g. 15.4%.)		%

   6. Determine the operating leverage.

Answer 1