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) Production costs: Direct materials — $28 Direct labor — 19 Factory overhead $98,800 14 Selling expenses: Sales salaries and commissions 20,500 6 Advertising 6,900 — Travel 1,500 — Miscellaneous selling expense 1,700 6 Administrative expenses: Office and officers' salaries 20,100 — Supplies 2,500 2 Miscellaneous administrative expense 2,440 3 Total $154,440 $78 It is expected that 5,280 units will be sold at a price of $156 a unit. Maximum sales within the relevant range are 7,000 units. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank 35d75bfacfeb023_4 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: $fill in the blank 35d75bfacfeb023_5 Percentage: (Round to the nearest whole percent.) fill in the blank 35d75bfacfeb023_6 % 6. Determine the operating leverage. Round to one decimal place. fill in the blank 35d75bfacfeb023_7

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Answer subparts 4-6

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)
Production costs:
	Direct materials	—		$28
	Direct labor	—		19
	Factory overhead	$98,800			14
Selling expenses:
	Sales salaries and commissions	20,500			6
	Advertising	6,900			—
	Travel	1,500			—
	Miscellaneous selling expense	1,700			6
Administrative expenses:
	Office and officers' salaries	20,100			—
	Supplies	2,500			2
	Miscellaneous administrative expense	2,440			3
	Total	$154,440			$78

It is expected that 5,280 units will be sold at a price of $156 a unit. Maximum sales within the relevant range are 7,000 units.

Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$ fill in the blank 35d75bfacfeb023_4

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

Dollars:	$fill in the blank 35d75bfacfeb023_5
Percentage: (Round to the nearest whole percent.)	fill in the blank 35d75bfacfeb023_6	%

6. Determine the operating leverage. Round to one decimal place.
fill in the blank 35d75bfacfeb023_7

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