Question

The following CVP income statements are available for Blanc Company and Noir Company.

		Blanc Company		Noir Company
Sales		$540,000		$540,000
Variable costs		324,000		270,000
Contribution margin		216,000		270,000
Fixed costs		189,000		243,000
Net income		$27,000		$27,000

Assuming that sales revenue increases by 20%, prepare a CVP income statement for each company. Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company.

Answer 1

Sales revenue increase by 20%

	Blanc Company	Noir Company
Sales	$648,000 [$540,000+($540,000*20%)]	$648,000 [$540,000+($540,000*20%)]
Variable costs	$388,800 [$324,000+($324,000*20%)]	$324,000 [$270,000+($270,000*20%)]
Contribution margin	$259,200	$324,000
Fixed costs	$189,000	$243,000
Net income	$70,200	$81,000

Sales revenue decrease by 20%

	Blanc Company	Noir Company
Sales	$432,000 [$540,000-($540,000*20%)]	$432,000 [$540,000-($540,000*20%)]
Variable costs	$259,200 [$324,000-($324,000*20%)]	$216,000 [$270,000-($270,000*20%)]
Contribution margin	$172,800	$216,000
Fixed costs	$189,000	$243,000
Net income	$(16,200)	$(27,000)