leverageBlythe Industries 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 costs Estimated Variable cost(per unit sold)Production costs: Direct materials $46Direct Labor 40Factory overhead $200,000 20Selling expenses:Sales salaries and commission 110,000 8 Advertising 40,000Travel 12,000Miscellaneous selling expense 7,600 1Administrative expenses:Office and officers' salaries 132,000Supplies 10,000 4Miscellaneous administrative expense 13,400 1total $525,000 $120It is expected that 21,875 units will be sold at price of $160 a unit. Maximum sales within the relevant range are 27,000 units.Instructions1. Prepare an estimated income statement for 20122. What is the expected contribution margin ratio?3. Determine the break-even sales in units and dollars.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.
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