Question

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 20Y7 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:

Estimated Fixed Cost Estimated Variable Cost (per unit sold) $26 17 $438,700 13 91,200 6 30,800 Production costs: Direct materials Direct labor Factory overhead Selling expenses: Sales salaries and commissions Advertising Travel Miscellaneous selling expense Administrative expenses: Office and officers' salaries Supplies Miscellaneous administrative expense Total 6,900 7,500 5 89,100 2 11,000 10,240 $685,440 3 $72 It is expected that 7,480 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 9,000 units. Required: 1. Prepare an estimated income statement for 2017.

Answer 1

0 Income Statement is already prepared. Gross profit in in come statement = $(1.795,200- 857,580) $937, 620 Cont. Margin ratio Contribution Sales X120 Contribution per unit = 240-(72) $ 168 Conto Margin ratio = 168 Xloo 240 70% (درا) B.E.P lin units) Fixed cost conto/ unit 685, 440 168 4080 units B.E.P lin ) - Fixed cost cont margin ratio 685,440 70% $979,200 y 12.00 qm1ooot Y = 168X (Contribution line) 800야 boot 000 u!)$ soot Joy 4001 goo Ref 7x TODD 2000 3000 4002 S000 y units

Margin of safety = Profit Conto Margin Ratio 571,200 $ 816,000 70 % Margin of Safety (%) = Current Sale Current Sale - BEP Sale Xleo Current sule 7480 4-8o 7480 X100 45% 6 Operating leverage contribution EBIT (240-72) x 7480 571,200 2.2