Question

Homework Chapter zu 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 2017 as at the beginning of the year. The total of all productior costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads werd asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials Direct labor Factory overhead $198,900 Selling expenses: Sales salaries and commissions 41,300 Advertising 14,000 Travel 3,100 Miscellaneous selling expense 3,400 Administrative expenses: Office and officers' salaries 40,400 Supplies 5,000 Miscellaneous administrative expense 4,700 Total $310,800 $84 It is expected that 7,400 units will be sold at a price of $168 a unit. Maximum sales within the relevant range are 9,000 units. Required: 1. Prepare an estimated income statement for 2017. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2047

Answer 1

1,243,200 222,000 148,000 309,900 679,900 563,300 Answer to Requirement 1. Belmain Co. Estimated Income Statement For the Year Ended December 31, 2047 Sales Cost of Goods Sold: Direct Materials Direct Labor Factory Overhead Total Cost of Goods Sold Gross Profit Expenses: Selling Expenses: Sales Salaries and Commission 93,100 Advertising 14,000 Travel 3,100 Misc. Selling Expense 47,800 Total Selling Expenses Administrative Expenses: Office and Officers' Salaries 40,400 Supplies 27,200 Misc. Administrative Expenses 26,900 Total Administrative Expenses Total Expenses Income from Operations 158,000 94,500 252,500 310,800

Answer to Requirement 2.

Unit Selling Price = $168
Unit Variable Cost = $84
Unit Contribution Margin = Unit Selling Price - Unit Variable Cost
Unit Contribution Margin = $168 - $84
Unit Contribution Margin = $84

Contribution Margin Ratio = Unit Contribution Margin / Unit Selling Price * 100
Contribution Margin Ratio = $84 / $168 * 100
Contribution Margin Ratio = 50%

Answer to Requirement 3.

Break Even Sales (Units) = Fixed Cost / Unit Contribution Margin
Break Even Sales (Units) = $310,800 / $84
Break Even Sales (Units) = 3,700 Units

Break Even Sales (Dollars) = Break Even Sales (Units) * Unit Selling Price
Break Even Sales (Dollars) = 3,700 * $168
Break Even Sales (Dollars) = $621,600

Answer to Requirement 5.

Margin of Safety (Dollars) = Current Sales – Break Even Dollar Sales
Margin of Safety (Dollars) = $1,243,200 - $621,600
Margin of Safety (Dollars) = $621,600

Margin of Safety (Percent) = (Current Sales – Break Even Dollar Sales) / Current Sales * 100
Margin of Safety (Percent) = ($1,243,200 - $621,600) / $621,600 * 100
Margin of Safety (Percent) = 100%

Answer to Requirement 6.

Contribution Margin = 7,400 * $84
Contribution Margin = $621,600

Operating Leverage = Contribution Margin / EBIT
Operating Leverage = $621,600 / $310,800
Operating Leverage = 2.0