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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 $20$Y$7$ 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:

Line Item Description Estimated

Fixed Cost Estimated Variable Cost

$($per unit sold$)$

Production costs:

Direct materials $$ $$26$

Direct labor $17$

Factory overhead $$235,00013$

Selling expenses:

Sales salaries and commissions $48,8006$

Advertising $16,500$

Travel $3,700$

Miscellaneous selling expense $4,0005$

Administrative expenses:

Office and officers' salaries $47,700$

Supplies $5,9002$

Miscellaneous administrative expense $5,6003$

Total $$367,200$ $$72$

It is expected that $6,800$ units will be sold at a price of $$180$ a unit. Maximum sales within the relevant range are $9,000$ units.

Required:

Question Content Area

$1.$ Prepare an estimated income statement for $20$Y$7.$

Belmain Co$.$

Estimated Income Statement

For the Year Ended December $31,20$Y$7$

Line Item Description Amount Amount Amount

$Sales

Cost of goods sold:

$Direct materials

Direct labor

Factory overhead

Total cost of goods sold Total cost of goods sold

Gross profit $Gross profit

Expenses:

Selling expenses:

$Sales salaries and commissions

Advertising

Travel

Miscellaneous selling expense

Total selling expenses $ Total selling expenses

Administrative expenses:

$Office and officers' salaries

Supplies

Miscellaneous administrative expense

Total administrative expenses Total administrative expenses

Total expenses Total expenses

Operating income $Operating income

Feedback Area

Feedback

$1.$ Use the data to compute the total costs. Remember that some of the costs have a fixed and a variable cost component.

Question Content Area

$2.$ What is the expected contribution margin ratio? $($Round to the nearest whole percent.$)$

fill in the blank $1$ of $1\%$

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

Units fill in the blank $1$ of $2$ units

Dollars fill in the blank $2$ of $2$$

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

fill in the blank $1$ of $1$$

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

Dollars fill in the blank $1$ of $2$$

Percentage: $($Round to the nearest whole percent.$)$ fill in the blank $2$ of $2\%$

$6.$ Determine the operating leverage. $($Round to one decimal place.$)$

fill in the blank $1$ of $1$

Answer & Explanation Solved by verified expert

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