Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018.
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Answer:
<u><em>Part a </em></u>
<u>Belmain Co.</u>
<u>Estimated Income statement for the year ended 2017.</u>
Sales ($240 x 12,000) $2,880,000
<u>Less Variable Costs :</u>
Direct Materials ($50.00 x 12,000) ($600,000)
Direct Labor ($30.00 x 12,000) ($360,000)
Factory Overheads ($6.00 x 12,000) ($72,000)
Sales Salaries and Commissions ( $4.00 x 12,000) ($48,000)
Miscellaneous selling expenses ( $1.00 x 12,000) ($12,000)
Supplies ($4.00 x 12,000) ($48,000)
Miscellaneous administrative expenses ($1.00 x 12,000) ($12,000)
Contribution $1,728,000
<u>Less Fixed Expenses :</u>
Factory overhead ($350,000)
Sales salaries and commissions ($340,000)
Advertising ($116,000)
Travel ($4,000)
Miscellaneous selling expense ($2,300)
Office and officers’ salaries ($325,000)
Supplies ($6,000)
Miscellaneous administrative expense ($8,700)
Net Income ( Loss) $576,000
<u><em>Part b</em></u>
0.6 or 60 %
<u><em>Part c</em></u>
Break-even sales (units) = 8,000
Break-even sales (dollars) = $1,920,000
<u><em>Part d</em></u>
<em>See attachment </em>
<u><em>Part e</em></u>
Margin of safety in dollars = $960,000
Margin of safety in percentage = 33.3 %
<em><u>Part f</u></em>
Operating Leverage = 3.00
Explanation:
<u>Income Statement :</u>
<em>Sales - Expenses = Income</em>
Note : I have separated Variable and Fixed Expenses
<u>Contribution Margin ratio :</u>
<em>Contribution Margin ratio = Contribution ÷ Sales</em>
= $1,728,000 ÷ $2,880,000
= 0.6 or 60 %
<u>Break-even sales ( units and dollars) :</u>
<em>Break-even sales (units) = Fixed Costs ÷ Contribution per unit</em>
= $1,152,000 ÷ $144.00
= 8,000
<em>Break-even sales (dollars) = Fixed Costs ÷ Contribution margin ratio</em>
= $1,152,000 ÷ 0.60
= $1,920,000
<u>Margin of safety in dollars and as a percentage of sales :</u>
<u />
<em>Margin of safety in dollars = Expected Sales (dollars) - Break-even sales (dollars)</em>
= $2,880,000 - $1,920,000
= $960,000
<em>Margin of safety in % = (Expected Sales - Break-even sales ) ÷ Expected Sales</em>
= $960,000 ÷ $2,880,000
= 33.3 %
<u>Operating leverage</u>
<em>Operating Leverage = Contribution ÷ Earnings Before Interest and Tax</em>
= $1,728,000 ÷ $576,000
= 3.00
