Question

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

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

Blanc Company

Noir Company

Sales $470,000 $470,000
Variable costs 282,000 235,000
Contribution margin 188,000 235,000
Fixed costs 169,200 216,200
Net income $18,800 $18,800

Calculate Contribution margin ratio.

Contribution Margin Ratio

Blanc Company

Noir Company

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 $

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 2 decimal places, e.g. 1.56.)

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).)

Blanc Company

Noir Company

Administrative ExpensesVariable CostsCost of Goods SoldNet Income/(Loss)SalesGross ProfitTotal Variable ExpensesContribution MarginSelling ExpensesTotal Fixed ExpensesFixed Costs

$

$

Contribution MarginFixed CostsAdministrative ExpensesVariable CostsTotal Variable ExpensesNet Income/(Loss)SalesSelling ExpensesTotal Fixed ExpensesGross ProfitCost of Goods Sold

Cost of Goods SoldTotal Fixed ExpensesSalesSelling ExpensesAdministrative ExpensesNet Income/(Loss)Gross ProfitFixed CostsTotal Variable ExpensesVariable CostsContribution Margin

Variable CostsSalesSelling ExpensesFixed CostsGross ProfitNet Income/(Loss)Cost of Goods SoldAdministrative ExpensesTotal Variable ExpensesContribution MarginTotal Fixed Expenses

SalesFixed CostsAdministrative ExpensesTotal Variable ExpensesGross ProfitSelling ExpensesTotal Fixed ExpensesContribution MarginCost of Goods SoldNet Income/(Loss)Variable Costs

$

$

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

Contribution MarginAdministrative ExpensesVariable CostsNet Income/(Loss)Fixed CostsCost of Goods SoldSalesTotal Variable ExpensesTotal Fixed ExpensesSelling ExpensesGross Profit

$

$

Fixed CostsGross ProfitNet Income/(Loss)Cost of Goods SoldSalesAdministrative ExpensesContribution MarginSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs

Variable CostsContribution MarginFixed CostsCost of Goods SoldAdministrative ExpensesNet Income/(Loss)Gross ProfitTotal Fixed ExpensesSalesSelling ExpensesTotal Variable Expenses

Contribution MarginTotal Variable ExpensesTotal Fixed ExpensesNet Income/(Loss)Administrative ExpensesCost of Goods SoldFixed CostsVariable CostsGross ProfitSalesSelling Expenses

Variable CostsGross ProfitSelling ExpensesNet Income/(Loss)Cost of Goods SoldFixed CostsTotal Variable ExpensesSalesTotal Fixed ExpensesAdministrative ExpensesContribution Margin

$

$

0 0
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Answer #1
Ans. 1 Contribution margin ratio = Contribution margin / Total sales * 100
Blanc Company $188,000 / $470,000 * 100 40%
Noir Company $235,000 / $470,000 * 100 50%
Ans. 2 Break even point in sales = Fixed costs / Contribution margin ratio
Blanc Company $169,200 / 40% $423,000
Noir Company $216,200 / 50% $432,400
Ans. 3 Margin of safety ratio = (Actual sales - Break even sales) / Actual sales * 100
Blanc Company ($470,000 - $423,000) / $470,000 * 100
$47,000 / $470,000 * 100
10.000%
Noir Company ($470,000 - $432,400) / $470,000 * 100
$37,600 / $470,000 * 100
8.000%
Ans. 4 Degree of operating leverage    =   Contribution margin / Operating income
Blanc Company $188,000 / $18,800 10.00
Noir Company $235,000 / $18,800 12.50
Ans. 5 *Increase in sales revenue would not affect the ratio of variable cost and contribution margin
on sales.
For Blanc company, the contribution margin ratio is 40% of sales it means the variable costs are
60% (i.e. 1 - 40%) of sales.
Just as, the contribution margin ratio is 50% of sales it means the variable costs are
50% (i.e. 1 - 50%) of sales for Noir company.
BLANC COMPANY
CVP Income Statement
Particulars Amount
Sales ($470,000 * 1.20) $564,000
Variable expenses ($564,000*60%) -$338,400
Contribution margin $225,600
Fixed expenses -$18,800
Net operating income $206,800
NOIR COMPANY
CVP Income Statement
Particulars Amount
Sales ($470,000 * 1.20) $564,000
Variable expenses ($564,000*50%) -$282,000
Contribution margin $282,000
Fixed expenses -$18,800
Net operating income $263,200
*Fixed costs always remain constant.
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