Question

Question 2

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

		Blanc Company		Noir Company
Sales		$ 530,000		$ 530,000
Variable costs		318,000		265,000
Contribution margin		212,000		265,000
Fixed costs		203,520		256,520
Net income		$ 8,480		$ 8,480

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

		Contribution Margin Ratio
Blanc Company
Noir Company

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

		Break-even Point
Blanc Company		$
Noir Company		$

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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

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Compute the degree of operating leverage for each company. (Round answers to 2 decimal places, e.g. 1.56.)

		Degree of Operating Leverage
Blanc Company
Noir Company

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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
Total Variable ExpensesTotal Fixed ExpensesCost of Goods SoldSelling ExpensesGross ProfitVariable CostsAdministrative ExpensesSalesNet Income/(Loss)Fixed CostsContribution Margin		$		$
Total Variable ExpensesAdministrative ExpensesFixed CostsSalesSelling ExpensesGross ProfitNet Income/(Loss)Cost of Goods SoldTotal Fixed ExpensesContribution MarginVariable Costs
Total Fixed ExpensesVariable CostsNet Income/(Loss)Gross ProfitFixed CostsTotal Variable ExpensesSelling ExpensesSalesAdministrative ExpensesContribution MarginCost of Goods Sold
SalesCost of Goods SoldNet Income/(Loss)Selling ExpensesContribution MarginTotal Fixed ExpensesFixed CostsGross ProfitAdministrative ExpensesVariable CostsTotal Variable Expenses
Contribution MarginSelling ExpensesAdministrative ExpensesNet Income/(Loss)Fixed CostsTotal Fixed ExpensesGross ProfitVariable CostsSalesTotal Variable ExpensesCost of Goods Sold		$		$

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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
Cost of Goods SoldNet Income/(Loss)Fixed CostsContribution MarginGross ProfitAdministrative ExpensesVariable CostsSalesTotal Fixed ExpensesSelling ExpensesTotal Variable Expenses		$		$
Administrative ExpensesTotal Variable ExpensesFixed CostsSelling ExpensesCost of Goods SoldGross ProfitVariable CostsContribution MarginNet Income/(Loss)SalesTotal Fixed Expenses
Gross ProfitFixed CostsTotal Fixed ExpensesSelling ExpensesAdministrative ExpensesContribution MarginTotal Variable ExpensesCost of Goods SoldVariable CostsNet Income/(Loss)Sales
Contribution MarginTotal Variable ExpensesNet Income/(Loss)Selling ExpensesVariable CostsTotal Fixed ExpensesGross ProfitAdministrative ExpensesSalesFixed CostsCost of Goods Sold
Fixed CostsCost of Goods SoldSelling ExpensesTotal Variable ExpensesSalesAdministrative ExpensesNet Income/(Loss)Variable CostsGross ProfitContribution MarginTotal Fixed Expenses		$		$

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Answer 1

1. Calculation Of Contribution Margin Ratio
Contribution Margin ratio = Contribution Margin / Sales
	Blanc Company	Noir Company
Sales (A)	530,000	530,000
Contribution Margin (B)	212,000	265,000
Contribution Margin ratio (C = B/A)	0.40	0.50
2. Calculation of Break Even Point in dollar
Break Even Point in sales = Fixed Cost / Contribution Margin ratio
	Blanc Company	Noir Company
Contribution Margin ratio (A)	0.40	0.50
Fixed Cost (B)	203,520	256,520
BEP in Dollars (B/A)	$508,800	$513,040
3. Calculation of Margin of Safety ratio
MOS ratio = MOS / Sales
	Blanc Company	Noir Company
Sales (A)	530,000	530,000
BEP Sales (B)	508,800	513,040
Margin of Safety C = (A-B)	21,200	16,960
MOS ratio D = (C/A)	0.040	0.032
4. Calculation of Degree of operating Leverage
Degree of operating leverage = Contribution Margin / Net Income
	Blanc Company	Noir Company
Contribution Margin	212,000	265,000
Net Income	8,480	8,480
Degree of Operating leverage	25	31.25
5. If Sales revenue increased by 20%
	Blanc Company	Noir Company
Sales	636,000	636,000
variable cost	(381,600)	(318,000)
conribution margin	254,400	318,000
Fixed Cost	(203,520)	(256,520)
Net income	50,880	61,480
If Sales revenue decreased by 20%
	Blanc Company	Noir Company
Sales	424,000	424,000
variable cost	(254,400)	(212,000)
conribution margin	169,600	212,000
Fixed cost	(203,520)	(256,520)
Net income(loss)	(33,920)	(44,520)