Question

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

		Blanc Company		Noir Company
Sales		$485,000		$485,000
Variable costs		291,000		242,500
Contribution margin		194,000		242,500
Fixed costs		186,240		234,740
Net income		$7,760		$7,760

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
SalesSelling ExpensesVariable CostsFixed CostsTotal Variable ExpensesContribution MarginNet Income/(Loss)Gross ProfitCost of Goods SoldTotal Fixed ExpensesAdministrative Expenses		$		$
Variable CostsFixed CostsNet Income/(Loss)Total Fixed ExpensesAdministrative ExpensesSelling ExpensesSalesContribution MarginGross ProfitTotal Variable ExpensesCost of Goods Sold
Selling ExpensesSalesGross ProfitTotal Fixed ExpensesTotal Variable ExpensesCost of Goods SoldAdministrative ExpensesVariable CostsFixed CostsContribution MarginNet Income/(Loss)
Net Income/(Loss)Fixed CostsAdministrative ExpensesContribution MarginCost of Goods SoldVariable CostsTotal Variable ExpensesSalesTotal Fixed ExpensesGross ProfitSelling Expenses
Selling ExpensesTotal Fixed ExpensesVariable CostsFixed CostsNet Income/(Loss)Cost of Goods SoldGross ProfitAdministrative ExpensesContribution MarginSalesTotal Variable Expenses		$		$

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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
Net Income/(Loss)SalesTotal Variable ExpensesFixed CostsGross ProfitAdministrative ExpensesSelling ExpensesCost of Goods SoldVariable CostsTotal Fixed ExpensesContribution Margin		$		$
Selling ExpensesGross ProfitTotal Variable ExpensesFixed CostsContribution MarginCost of Goods SoldNet Income/(Loss)SalesAdministrative ExpensesVariable CostsTotal Fixed Expenses
Administrative ExpensesVariable CostsTotal Fixed ExpensesFixed CostsCost of Goods SoldNet Income/(Loss)Contribution MarginTotal Variable ExpensesSelling ExpensesSalesGross Profit
Total Fixed ExpensesVariable CostsGross ProfitContribution MarginTotal Variable ExpensesCost of Goods SoldFixed CostsSalesNet Income/(Loss)Selling ExpensesAdministrative Expenses
Total Fixed ExpensesSalesFixed CostsTotal Variable ExpensesCost of Goods SoldSelling ExpensesAdministrative ExpensesNet Income/(Loss)Variable CostsContribution MarginGross Profit		$		$

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Answer 1

(1)

contribution margin ratio = contribution margin/sales

for Blanc company,

= $194000/485000 = 40%

for Noir company,

= $242500/$485000 = 50%

(2)

Break even point (dollar sales) = fixed costs/contribution margin ratio

for Blanc company,

= $186240/40% = $465600

for Noir company,

= $234740/50% = $469480

(3)
margin of safety (in %) = (total sales - break even sales)/total sales

for Blanc company,

= ($485000 - $465600)/$485000 = 4%

for Noir company,

= ($485000 - $469480)/$485000 = 3.2%

(4)

degree of operating leverage = contribution margin/net income

for Blanc company,

= $194000/$7760 = 25 times

for Noir company,

= $242500/$7760 = 31.25 times