Exercise 19-14 (Part Level Submission)

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

		Armstrong Co.		Contador Co.
Sales		$602,000		$602,000
Variable costs		278,900		76,200
Contribution margin		323,100		525,800
Fixed costs		167,600		370,300
Net income		$155,500		$155,500

(a)

	Your answer is correct.

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

Degree of Operating Leverage

Armstrong

Contador

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(b)

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

		Armstrong Company		Contador Company
Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsNet Income/(Loss)Sales RevenueSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs		$		$
Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsNet Income/(Loss)Sales RevenueSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs
Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsNet Income/(Loss)Sales RevenueSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs
Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsNet Income/(Loss)Sales RevenueSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs
Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsNet Income/(Loss)Sales RevenueSelling ExpensesTotal Fixed ExpensesTotal Variable ExpensesVariable Costs		$		$