le costs 240,000 50,000 Contribution margin 260,000 450,000 Fixed costs 160,000 350,000 Net income $100,000 $100,000 Instructions Compute the degree of operating leverage for each company
E6.14 (LO 4), AN The single-column CVP income statements shown below are available for Armstrong Company and Contador Company.
Armstrong Co. Contador Co.
Sales $500,000 $500,000
Variable costs 240,000 50,000
Contribution margin 260,000 450,000
Fixed costs 160,000 350,000
Net income $100,000 $100,000
Instructions
Compute the degree of operating leverage for each company and interpret your results.
Assuming that sales revenue increases by 10%, restate the single-column CVP income statement from above for each company.
Discuss how the cost structure of these two companies affects their operating leverage and profitability.
Compute degree of operating leverage and evaluate impact of alternative cost structures on net income and margin of safety.
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