Question

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

		Blanc Company		Noir Company
Sales		$501,000		$501,000
Variable costs		275,550		180,360
Contribution margin		225,450		320,640
Fixed costs		166,000		261,190
Net income		$59,450		$59,450

Calculate Contribution margin ratio. (Round answers to 2 decimal places, e.g. 0.32.)

		Contribution Margin Ratio
Blanc Company
Noir Company

  

  

Compute break-even point in dollars for each company. (Round answers to 0 decimal places, e.g. 1,225.)

		Break-even Point
Blanc Company		$
Noir Company		$

  

  

Compute margin of safety ratio for each company. (Round answers to 3 decimal places, e.g. 0.321.)

		Margin of Safety Ratio
Blanc Company
Noir Company

  

  

Compute the degree of operating leverage for each company. (Round answers to 1 decimal place, e.g. 1.5.)

		Degree of Operating Leverage
Blanc Company
Noir Company

  

  

Assuming that sales revenue increases by 20%, prepare a CVP income statement for each company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answers to 0 decimal places, e.g. 1,225.)

		Blanc Company		Noir Company
Sales		$		$
Variable costs
Contribution margin
Fixed costs
Net income / (Loss)		$		$

  

  

Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answers to 0 decimal places, e.g. 1,225.)

		Blanc Company		Noir Company
Sales		$		$
Variable costs
Contribution margin
Fixed costs
Net income / (Loss)		$		$

  

Answer 1

1		Contribution Margin Ratio
	Blanc Company (225,450/501,000)	45.00%
	Noir Company (320,640/501,000)	64.00%
2		Break-even Point
	Blanc Company (166,000/45%)	$368,889
	Noir Company (261,190/64%)	$408,109
3		Margin of safety ratio
	Blanc Company (501,000 - 368,889)/501,000	26.369%
	Noir Company (501,000 - 408,109)/501,0000	18.541%
4		Degree of Operating Leverage
	Degree of operating leverage
	(Contribution margin/Net income)
		Degree of Operating Leverage
	Blanc Company (225,450/59,450)	379.2%
	Noir Company (320,640/59,450)	539.3%