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 — $26 Direct labor — 17 Factory overhead $365,000 13 Selling expenses: Sales salaries and commissions 75,800 6 Advertising 25,700 — Travel 5,700 — Miscellaneous selling expense 6,300 5 Administrative expenses: Office and officers' salaries 74,100 — Supplies 9,100 2 Miscellaneous administrative expense 8,540 3 Total $570,240 $72 It is expected that 5,280 units will be sold at a price of $360 a unit. Maximum sales within the relevant range are 7,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 $fill in the blank f42405feff90f91_2 Cost of goods sold: $fill in the blank f42405feff90f91_4 fill in the blank f42405feff90f91_6 fill in the blank f42405feff90f91_8 Total cost of goods sold fill in the blank f42405feff90f91_9 Gross profit $fill in the blank f42405feff90f91_10 Expenses: Selling expenses: $fill in the blank f42405feff90f91_12 fill in the blank f42405feff90f91_14 fill in the blank f42405feff90f91_16 fill in the blank f42405feff90f91_18 Total selling expenses $fill in the blank f42405feff90f91_19 Administrative expenses: $fill in the blank f42405feff90f91_21 fill in the blank f42405feff90f91_23 fill in the blank f42405feff90f91_25 Total administrative expenses fill in the blank f42405feff90f91_26 Total expenses fill in the blank f42405feff90f91_27 Operating income $fill in the blank f42405feff90f91_28 2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank e27eae06dfb9fa4_1 % 3. Determine the break-even sales in units and dollars. Units fill in the blank e27eae06dfb9fa4_2 units Dollars $fill in the blank e27eae06dfb9fa4_3 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank e27eae06dfb9fa4_4 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: $fill in the blank e27eae06dfb9fa4_5 Percentage: (Round to the nearest whole percent.) fill in the blank e27eae06dfb9fa4_6 % 6. Determine the operating leverage. Round to one decimal place. fill in the blank e27eae06dfb9fa4_7

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 — $26 Direct labor — 17 Factory overhead $365,000 13 Selling expenses: Sales salaries and commissions 75,800 6 Advertising 25,700 — Travel 5,700 — Miscellaneous selling expense 6,300 5 Administrative expenses: Office and officers' salaries 74,100 — Supplies 9,100 2 Miscellaneous administrative expense 8,540 3 Total $570,240 $72 It is expected that 5,280 units will be sold at a price of $360 a unit. Maximum sales within the relevant range are 7,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 $fill in the blank f42405feff90f91_2 Cost of goods sold: $fill in the blank f42405feff90f91_4 fill in the blank f42405feff90f91_6 fill in the blank f42405feff90f91_8 Total cost of goods sold fill in the blank f42405feff90f91_9 Gross profit $fill in the blank f42405feff90f91_10 Expenses: Selling expenses: $fill in the blank f42405feff90f91_12 fill in the blank f42405feff90f91_14 fill in the blank f42405feff90f91_16 fill in the blank f42405feff90f91_18 Total selling expenses $fill in the blank f42405feff90f91_19 Administrative expenses: $fill in the blank f42405feff90f91_21 fill in the blank f42405feff90f91_23 fill in the blank f42405feff90f91_25 Total administrative expenses fill in the blank f42405feff90f91_26 Total expenses fill in the blank f42405feff90f91_27 Operating income $fill in the blank f42405feff90f91_28 2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank e27eae06dfb9fa4_1 % 3. Determine the break-even sales in units and dollars. Units fill in the blank e27eae06dfb9fa4_2 units Dollars $fill in the blank e27eae06dfb9fa4_3 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank e27eae06dfb9fa4_4 5. What is the expected margin of safety in dollars and as a percentage of sales? Dollars: $fill in the blank e27eae06dfb9fa4_5 Percentage: (Round to the nearest whole percent.) fill in the blank e27eae06dfb9fa4_6 % 6. Determine the operating leverage. Round to one decimal place. fill in the blank e27eae06dfb9fa4_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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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	—		$26
	Direct labor	—		17
	Factory overhead	$365,000			13
Selling expenses:
	Sales salaries and commissions	75,800			6
	Advertising	25,700			—
	Travel	5,700			—
	Miscellaneous selling expense	6,300			5
Administrative expenses:
	Office and officers' salaries	74,100			—
	Supplies	9,100			2
	Miscellaneous administrative expense	8,540			3
	Total	$570,240			$72

It is expected that 5,280 units will be sold at a price of $360 a unit. Maximum sales within the relevant range are 7,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

Belmain Co.
Estimated Income Statement
For the Year Ended December 31, 20Y7
			$fill in the blank f42405feff90f91_2
Cost of goods sold:
		$fill in the blank f42405feff90f91_4
		fill in the blank f42405feff90f91_6
		fill in the blank f42405feff90f91_8
Total cost of goods sold			fill in the blank f42405feff90f91_9
Gross profit			$fill in the blank f42405feff90f91_10
Expenses:
Selling expenses:
	$fill in the blank f42405feff90f91_12
	fill in the blank f42405feff90f91_14
	fill in the blank f42405feff90f91_16
	fill in the blank f42405feff90f91_18
Total selling expenses		$fill in the blank f42405feff90f91_19
Administrative expenses:
	$fill in the blank f42405feff90f91_21
	fill in the blank f42405feff90f91_23
	fill in the blank f42405feff90f91_25
Total administrative expenses		fill in the blank f42405feff90f91_26
Total expenses			fill in the blank f42405feff90f91_27
Operating income			$fill in the blank f42405feff90f91_28

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
fill in the blank e27eae06dfb9fa4_1 %

3. Determine the break-even sales in units and dollars.

Units	fill in the blank e27eae06dfb9fa4_2 units
Dollars	$fill in the blank e27eae06dfb9fa4_3

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$ fill in the blank e27eae06dfb9fa4_4

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

Dollars:	$fill in the blank e27eae06dfb9fa4_5
Percentage: (Round to the nearest whole percent.)	fill in the blank e27eae06dfb9fa4_6	%

6. Determine the operating leverage. Round to one decimal place.
fill in the blank e27eae06dfb9fa4_7

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