The following CVP income statements are available for Viejo Company and Nuevo Company.

Instructions
(a) Compute the break-even point in dollars and the margin of safety ratio 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 andprofitability.

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Viejo Compan Nuevo Company Sales Variable costs Contribution margin $500,000 280,000 220,000 180,000 $40,000 $500,000 180,000 320,000 280,000 40,000 Fixed costs Net income