Question

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

		Blanc Company		Noir Company
Sales		$570,000		$570,000
Variable costs		342,000		285,000
Contribution margin		228,000		285,000
Fixed costs		218,880		275,880
Net income		$9,120		$9,120

1. 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:

2.

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).)

		Blanc Company		Noir Company
Sales		$enter a dollar amount		$enter a dollar amount
Variable costs		enter a dollar amount		enter a dollar amount
Contribution margin		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Fixed costs		enter a dollar amount		enter a dollar amount
Net income / (Loss)		$enter a total amount		$enter a total amount

3.

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).)

Blanc Company		Noir Company
Sales		$enter a dollar amount		$enter a dollar amount
Variable costs		enter a dollar amount		enter a dollar amount
Contribution margin		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Fixed costs		enter a dollar amount		enter a dollar amount
Net income / (Loss)		$enter a total amount		$enter a total amount

Answer 1

1)	Margin of safety ratio		=	(Actual Sales - Break Even Sales) / Actual Sales
	Particulars			Blanc	Noir
(i)	Contribution Margin			$ 228,000.00	$ 285,000.00
(ii)	Sales			$ 570,000.00	$ 570,000.00
(i/ii = iii)	Contribution Margin ratio			0.4	0.5
(iv)	Fixed Cost			$ 218,880.00	$ 275,880.00
(iv/iii = v)	Break Even Sales			$ 547,200.00	$ 551,760.00
	Margin of Safety Ratio			0.040	0.032

2)			Blanc	Noir
	Sales		$ 684,000.00	$ 684,000.00
	Variable Costs		$ 410,400.00	$ 342,000.00
	Contribution Margin		$ 273,600.00	$ 342,000.00
	Fixed Costs		$ 218,880.00	$ 275,880.00
	Net Income		$   54,720.00	$   66,120.00

3)			Blanc	Noir
	Sales		$ 456,000.00	$ 456,000.00
	Variable Costs		$ 273,600.00	$ 228,000.00
	Contribution Margin		$ 182,400.00	$ 228,000.00
	Fixed Costs		$ 218,880.00	$ 275,880.00
	Net Income		$ (36,480.00)	$ (47,880.00)

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