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

 

Instructions
(a) Compute the break-even point in dollars and the margin of safety ratio (round to 3 places) for each company.
(b) Compute the degree of operating leverage for each company and interpret your results.
(c) Assuming that sales revenue increases by 20%, prepare a CVP income statement for each company.
(d) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company.
(e) Discuss how the cost structure of these two companies affects their operating leverage and profitability?

Blanc Company Noir Company Sales Variable costs $500,000 280,000 $500,000 180,000 Contribution margin Fixed costs 220,000 170,000 320,000 270,000 Net income $ 50,000 $ 50,000