Loumis Home Care Products Inc. expects to maintain the same inventories at the end of 2008 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 2008. A summary report of these estimates is as follows:

It is expected that 5,000 units will be sold at a price of $550 a unit. Maximum sales within the relevant range are 10,000 units.

Instructions
1. Prepare an estimated income statement for 2008.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units.
4. Construct a cost-volume-profit chart indicating the break-even sales.
5. What is the expected margin of safety?
6. Determine the operatingleverage.

Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: $137.70 116.40 27.20 Selling expenses: Sales salaries and commissions Advertising.. . ..356,225 67,500 9.15 2.25 Administrative expenses: 15,525 19,000 6.30 3.50 302.50