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P11-6 Contribution margin, break-even sales, cost-...




P11-6 Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 2012 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 2012. A summary report of these estimates is as follows: Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials ? $ 8.00 Direct labor ? 3.00 Factory overhead $ 200,000 1.50 Selling expenses: Advertising 1,450,000 ? Sales salaries and commissions 93,000 1.85 Travel 340,000 ? Miscellaneous selling expense 2,000 0.10 Administrative expenses: Office and officers? salaries 300,000 ? Supplies 10,000 0.50 Miscellaneous administrative expense 5,000 0.05 __________________________________________________________________________________________________________________ Total $2,400,000 $15.00 On the attaches page, 1. Prepare an estimated income statement for 2012. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units. 4. Construct a cost-volume-profit chart indicating 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


Paper#1630 | Written in 18-Jul-2015

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