The following CVP income statements are available for Al-Quds Corp. which has two plants A and B.

Plant A Plant B

Sales Revenue 700,000 700,000

Variable Cost 180,000 400,000

Contribution Margin 520,000 300,000

Fixed Cost 450,000 220,000

Net Income 70,000 80,000

Instructions

1. Compute the degree of operating leverage for the two plants (you can use the following table).

2. Determine which plant's cost structure contains more risk to change in sales volume and Why?

3. Determine the effect on each plant's net income if sales revenue decreased by 7%.

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