The following variable costing income statements are available for Lyte Company and Darke 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 30%, prepare a variable costing income statement for each company.
(d) Assuming that sales revenue decreases by 30%, prepare a variable costing income statement for each company.
(e) Discuss how the cost structure of these two companies affects their operating leverage andprofitability.

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Lyte Company Drke Company $1,000,000 600,000 400,000 200,000 200,000 Sales Variable costs $1,000,000 200,000 800,000 600,000 $ 200,000 Contribution margin Fixed costs Net income