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 DescriptionEstimated

Fixed CostEstimated Variable Cost

$($per unit sold$)$Production costs:Direct materials$$$$13$Direct labor$9$Factory overhead$$151,1006$Selling expenses:$$Sales salaries and commissions$31,4003$Advertising$10,600$Travel$2,400$Miscellaneous selling expense$2,6003$Administrative expenses:$$Office and officers' salaries$30,700$Supplies$3,8001$Miscellaneous administrative expense$3,5601$Total$$236,160$$$36$

It is expected that $10,660$ units will be sold at a price of $$72$ a unit. Maximum sales within the$$relevant range$$are $13,000$ 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 DescriptionAmountAmountAmount

Direct materialsMiscellaneous administrative expenseOperating incomeSalesSales salaries and commissionsSales

$SalesCost of goods sold:

Direct materialsOperating incomeSalesSuppliesTravelDirect materials

$Direct materials

AdvertisingDirect laborLoss from operationsOffice and officers' salariesOperating incomeDirect labor

Direct labor

Factory overheadMiscellaneous administrative expenseSalesSuppliesTravelFactory overhead

Factory overheadTotal cost of goods soldTotal cost of goods soldGross profit$Gross profitExpenses:Selling expenses:

Factory overheadMiscellaneous administrative expenseOperating incomeSalesSales salaries and commissionsSales salaries and commissions

$Sales salaries and commissions

AdvertisingCost of goods manufacturedDirect materialsOffice and officers' salariesSalesCost of goods manufactured

Cost of goods manufactured

Direct laborFactory overheadSalesSuppliesTravelSupplies

Supplies

Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSuppliesMiscellaneous selling expense

Miscellaneous selling expense$$Total selling expenses$$$Total selling expensesAdministrative expenses:

AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravelOffice and officers' salaries

$Office and officers' salaries

Direct materialsFactory overheadSalesSuppliesTravelTravel

Travel

Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSales salaries and commissionsMiscellaneous administrative expense

Miscellaneous administrative expense$$Total administrative expenses$$Total administrative expensesTotal expensesTotal expensesOperating income$Operating income

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$1.$ 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 $1$