The CVP income statements shown below are available for Armstrong Company and Co

Question

The CVP income statements shown below are available for Armstrong Company and Contador Company.

Armstrong Co.

Contador Co.

(a) Compute the degree of operating leverage for each company. (Round answers to 3 decimal places, e.g. 1.150.)

Degree of Operating Leverage

(b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company.

Armstrong Company

Contador Company

Armstrong Co.

Contador Co.

Sales $500,000 $500,000 Variable costs 235,000 45,000 Contribution margin 265,000 455,000 Fixed costs 155,000 345,000 Net income $110,000 $110,000

Explanation / Answer

Degree of operating leverage = Contribution margin /Net income

2)Variable cost ratio for :

Arm = 235000/500000 =.47

conta = 45000 / 500000 = .09

Arm. 265000/110000    =2.409 conta. 455000/110000=4.136

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