Contribution Margin, Break-Even Sales, A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.Cost-Volume-Profit Chart, Indicates the possible decrease in sales that may occur before an operating loss results.Margin of Safety, and A measure of the relative mix of a business's variable costs and fixed costs, computed as contribution margin divided by operating income.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 $22 Direct labor 14 Factory overhead $958,500 11 Selling expenses: Sales salaries and commissions 199,200 5 Advertising 67,400 Travel 15,000 Miscellaneous selling expense 16,500 4 Administrative expenses: Office and officers' salaries 194,700 Supplies 24,000 2 Miscellaneous administrative expense 22,300 2 Total $1,497,600 $60 It is expected that 10,140 units will be sold at a price of $300 a unit. Maximum sales within the The range of activity over which changes in cost are of interest to management.relevant range are 13,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Direct materials Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales $ Cost of goods sold: Direct materials Income from operations Sales Supplies Travel $ Advertising Direct labor Income from operations Loss from operations Office and officers' salaries Factory overhead Miscellaneous administrative expense Sales Supplies Travel Cost of goods sold Gross profit $ Expenses: Selling expenses: Factory overhead Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales $ Advertising Cost of goods manufactured Direct materials Office and officers' salaries Sales Direct labor Factory overhead Sales Supplies Travel Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales Supplies Total selling expenses $ Administrative expenses: Advertising Direct labor Office and officers' salaries Sales salaries and commissions Travel $ Direct materials Factory overhead Sales Supplies Travel Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales salaries and commissions Sales Total administrative expenses Total expenses Income from operations $ 2. What is the expected The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.contribution margin ratio? Round to the nearest whole percent. % 3. Determine the break-even sales in units and dollars. Units units Dollars units

Contribution Margin, Break-Even Sales, A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.Cost-Volume-Profit Chart, Indicates the possible decrease in sales that may occur before an operating loss results.Margin of Safety, and A measure of the relative mix of a business's variable costs and fixed costs, computed as contribution margin divided by operating income.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 $22 Direct labor 14 Factory overhead $958,500 11 Selling expenses: Sales salaries and commissions 199,200 5 Advertising 67,400 Travel 15,000 Miscellaneous selling expense 16,500 4 Administrative expenses: Office and officers' salaries 194,700 Supplies 24,000 2 Miscellaneous administrative expense 22,300 2 Total $1,497,600 $60 It is expected that 10,140 units will be sold at a price of $300 a unit. Maximum sales within the The range of activity over which changes in cost are of interest to management.relevant range are 13,000 units. Required: 1. Prepare an estimated income statement for 20Y7. Belmain Co. Estimated Income Statement For the Year Ended December 31, 20Y7 Direct materials Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales $ Cost of goods sold: Direct materials Income from operations Sales Supplies Travel $ Advertising Direct labor Income from operations Loss from operations Office and officers' salaries Factory overhead Miscellaneous administrative expense Sales Supplies Travel Cost of goods sold Gross profit $ Expenses: Selling expenses: Factory overhead Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales $ Advertising Cost of goods manufactured Direct materials Office and officers' salaries Sales Direct labor Factory overhead Sales Supplies Travel Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales Supplies Total selling expenses $ Administrative expenses: Advertising Direct labor Office and officers' salaries Sales salaries and commissions Travel $ Direct materials Factory overhead Sales Supplies Travel Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales salaries and commissions Sales Total administrative expenses Total expenses Income from operations $ 2. What is the expected The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.contribution margin ratio? Round to the nearest whole percent. % 3. Determine the break-even sales in units and dollars. Units units Dollars units

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 6PA: Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating...

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Question

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			$22
	Direct labor			14
	Factory overhead	$958,500			11
Selling expenses:
	Sales salaries and commissions	199,200			5
	Advertising	67,400
	Travel	15,000
	Miscellaneous selling expense	16,500			4
Administrative expenses:
	Office and officers' salaries	194,700
	Supplies	24,000			2
	Miscellaneous administrative expense	22,300			2
	Total	$1,497,600			$60

It is expected that 10,140 units will be sold at a price of $300 a unit. Maximum sales within the The range of activity over which changes in cost are of interest to management.relevant range are 13,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

Belmain Co.
Estimated Income Statement
For the Year Ended December 31, 20Y7
Direct materials Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales			$
Cost of goods sold:
Direct materials Income from operations Sales Supplies Travel		$
Advertising Direct labor Income from operations Loss from operations Office and officers' salaries
Factory overhead Miscellaneous administrative expense Sales Supplies Travel
Cost of goods sold
Gross profit			$
Expenses:
Selling expenses:
Factory overhead Income from operations Miscellaneous administrative expense Sales salaries and commissions Sales	$
Advertising Cost of goods manufactured Direct materials Office and officers' salaries Sales
Direct labor Factory overhead Sales Supplies Travel
Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales Supplies
Total selling expenses		$
Administrative expenses:
Advertising Direct labor Office and officers' salaries Sales salaries and commissions Travel	$
Direct materials Factory overhead Sales Supplies Travel
Direct materials Miscellaneous administrative expense Miscellaneous selling expense Sales salaries and commissions Sales
Total administrative expenses
Total expenses
Income from operations			$

2. What is the expected The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.contribution margin ratio? Round to the nearest whole percent.

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

Units	units
Dollars	units

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?

Dollars:	$
Percentage: (Round to the nearest whole percent.)		%

6. Determine the operating leverage. Round to one decimal place.

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