Question

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. (Round answers to 2 decimal places, e.g. 0.32.) 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. Blanc Company Noir Company Sales $ $ Variable Costs Contribution Margin Fixed Costs Net Income/(Loss) $ $

Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company. Blanc Company Noir Company Sales $ $ Variable Costs Contribution Margin Fixed Costs Net Income/(Loss) $ $

Answer 1

1) Contribution margin ratio

	Blanc Company	Noir Company
Contribution margin ratio	188000/470000 = 40%	235000/470000 = 50%

2) Break even sales

	Blanc Company	Noir Company
Break even sales	169200/.40 = 423000	216200/.50 = 432400

3) Margin of safety

	Blanc Company	Noir Company
Margin of safety	(470000-423000)/470000 = 10%	(470000-432400)/470000 = 8%

4) Degree of operating leverage

	Blanc Company	Noir company
Degree of operating leverage	188000/18800 = 10	235000/18800 = 12.50

Assuming that sales revenue increases by 20%, prepare a CVP income statement for each company. Blanc Company Noir Company Sales $564000 $564000 Variable Costs 338400 282000 Contribution Margin 225600 282000 Fixed Costs 169200 216200 Net Income/(Loss) $56400 $65800

Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company. Blanc Company Noir Company Sales $376000 $376000 Variable Costs 225600 188000 Contribution Margin 150400 188000 Fixed Costs 169200 216200 Net Income/(Loss) -18800 -28200