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 |
$ | $ |
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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