make sure to do all parts I\'ll rate Contribution Margin, Break-Even Sales, Cost
ID: 2397645 • Letter: M
Question
make sure to do all parts I'll rate
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:
It is expected that 7,020 units will be sold at a price of $288 a unit. Maximum sales within the relevant range are 9,000 units.
Required:
1. Prepare an estimated income statement for 20Y7.
2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%
3. Determine the break-even sales in units and dollars.
4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$
5. What is the expected margin of safety in dollars and as a percentage of sales?
6. Determine the operating leverage. Round to one decimal place.
EstimatedFixed Cost Estimated Variable Cost
(per unit sold) Production costs: Direct materials $26 Direct labor 17 Factory overhead $431,300 13 Selling expenses: Sales salaries and commissions 89,600 6 Advertising 30,300 Travel 6,700 Miscellaneous selling expense 7,400 5 Administrative expenses: Office and officers' salaries 87,600 Supplies 10,800 2 Miscellaneous administrative expense 10,220 3 Total $673,920 $72
Explanation / Answer
What is the expected contribution margin ratio?
contribution margin ratio =Contribution/Sales=1516320/201760 =75%
Determine the break-even sales in units and dollars
in units =Fixed Cost/Contrbution Per unit
=673920/216=3120 units
in dollars=3120*288=$898560
What is the expected margin of safety in dollars and as a percentage of sales
Margin of Saftey =Actual Sales - Break Even Sales =2021760*898560=1123200
margin of safety as a percentage of sales =Margin of Saftey/Sales=1123200/2021760=56%
6. Determine the operating leverage. Round to one decimal place.
Contrbution Margin/Net operating Income
=1516320/842400=1.8
Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Sales 2021760 Cost of goods sold: Direct Materials 182520 Direct Labor 119340 Factory Overhead 522560 Cost of goods sold 824420 Gross profit 1197340 Expenses: Selling expenses: Sales salaries and commissions 131720 Advertising 30300 Travel 6700 Misc. Selling Expense 42500 Total selling expenses 211220 Administrative expenses: Office and officers' salaries 87600 Supplies 24840 Misc. administrative expense 31280 Total administrative expenses 143720 Total expenses 354940 Income from operations 842400Related Questions
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