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 endof 20Y7 as at the beginning of the year. The total of allproduction costs for the year is therefore assumed to be equal tothe cost of goods sold. With this in mind, the various departmentheads were asked to submit estimates of the costs for theirdepartments during the year. A summary report of these estimates isas follows:

		Estimated Fixed Cost			Estimated Variable Cost (per unit sold)
Production costs:
	Direct materials				$17
	Direct labor				12
	Factory overhead	$150,500			9
Selling expenses:
	Sales salaries and commissions	31,300			4
	Advertising	10,600
	Travel	2,400
	Miscellaneous selling expense	2,600			3
Administrative expenses:
	Office and officers' salaries	30,600
	Supplies	3,800			1
	Miscellaneous administrative expense	3,400			2
	Total	$235,200			$48

It is expected that 5,600 units will be sold at a price of $160a unit. Maximum sales within the relevant range are 7,000units.

Required:

1. Prepare an estimated income statement for20Y7.

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

2. What is the expected contribution marginratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units anddollars.

Units	units
Dollars	units

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

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

Dollars:	$
Percentage: (Round to the nearest whole percent.)		%

6. Determine the operating leverage. Round toone decimal place.