Question

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

		Blanc Company		Noir Company
Sales		$545,000		$545,000
Variable costs		327,000		272,500
Contribution margin		218,000		272,500
Fixed costs		207,100		261,600
Net income		$10,900		$10,900

a.) Compute the break-even point in dollars for each company. (Round answers to 0 decimal places, e.g. 5,125.)

b.) Compute the margin of safety ratio for each company. (Round answers to 0 decimal places, e.g. 5,125.)

c.) Compute the degree of operating leverage for each company. (Round answers to 0 decimal places, e.g. 5,125.)

d.) Assuming that sales revenue increase by 20%, prepare a CVP income statement for each company.

Answer 1

Answer:

	Blanc company	Noir company
Sales (A)	$         545,000	$       545,000
Variable costs (B)	$         327,000	$       272,500
Contribution margin (C )	$         218,000	$       272,500
Fixed costs (D)	$         207,100	$       261,600
Net Income (E )	$           10,900	$         10,900
Contribution Ratio (C/A)=F	40%	50%
Break-even point (D/F=G)	$         517,750	$       523,200
Margin of Safety (A-G=H)	$           27,250	$         21,800
Margin of Safety in % (H/A)	5%	4%
DOL (C/E=I)	20	25

Answer d:

	Blanc company	Noir company
Sales (A)	$         654,000	$       654,000
Variable costs (B)	$         392,400	$       327,000
Contribution margin (C )	$         261,600	$       327,000
Fixed costs (D)	$         207,100	$       261,600
Net Income (E )	$           54,500	$         65,400

Answer e:

If reduces by 20%:

	Blanc company	Noir company
Sales (A)	$         436,000	$       436,000
Variable costs (B)	$         261,600	$       218,000
Contribution margin (C )	$         174,400	$       218,000
Fixed costs (D)	$         207,100	$       261,600
Net Income (E )	$          (32,700)	$       (43,600)

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