Question
Le Company Chi Company Revenue $ 750,000 $ 750,000 Less variable costs 300,000 525,000 Contribution margin $ 450,000 $ 225,000 Less fixed costs 405,000 180,000
| Le Company |
| Chi Company |
| |||||||||||
| Revenue |
| $ | 750,000 |
|
|
|
| $ | 750,000 |
|
| |||
| Less variable costs |
|
| 300,000 |
|
|
|
|
| 525,000 |
|
| |||
| Contribution margin |
| $ | 450,000 |
|
|
|
| $ | 225,000 |
|
| |||
| Less fixed costs |
|
| 405,000 |
|
|
|
|
| 180,000 |
|
| |||
| Net income |
| $ | 45,000 |
|
|
|
| $ | 45,000
| |||||
4) Based on the calculated magnitude of operating leverage for Chi Company (calculated in question 1), if the sales revenue of Le decreases by 40%, what will be the effect on profit (increase or decrease, by how many percent)? Show your work.
5) Which company is more vulnerable to the changes of the market condition? Why?
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Principles Of Managerial Accounting
Authors: James M. Reeve
1st Edition
0324640625, 978-0324640625
