The CVP income statements shown below are available for AX Company and ZY Company at the beginning of 2020. AX Company ZY Company Sales $500,000 $500,000 Variable Costs $110,000 $10,000 Contribution Margin $390,000 $490,000 Fixed Costs $100,000 $200,000 Net Income $290,000 $290,000 Instructions a. Using the breakeven point in dollar, determine which company could be in risk? b. Determine the degree of operating leverage for each company. c. During 2020, both companies faced problems resulted in having a decline in sales by $50,000 and that affected rapidly to the net income during that year. Which company would produce less net income?
The CVP income statements shown below are available for AX Company and ZY Company at the beginning of 2020. AX Company ZY Company Sales $500,000 $500,000 Variable Costs $110,000 $10,000 Contribution Margin $390,000 $490,000 Fixed Costs $100,000 $200,000 Net Income $290,000 $290,000 Instructions a. Using the breakeven point in dollar, determine which company could be in risk? b. Determine the degree of operating leverage for each company. c. During 2020, both companies faced problems resulted in having a decline in sales by $50,000 and that affected rapidly to the net income during that year. Which company would produce less net income?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter7: Variable Costing For Management
analysis
Section: Chapter Questions
Problem 16E
Related questions
Question
![The CVP income statements shown below are available for AX Company and ZY Company at
the beginning of 2020.
AX Company
ZY Company
Sales
$500,000
$500,000
Variable Costs
$110,000
$10,000
Contribution Margin
$390,000
$490,000
Fixed Costs
$100,000
$200,000
Net Income
$290,000
$290,000
Instructions
a. Using the breakeven point in dollar, determine which company could be in risk?
b. Determine the degree of operating leverage for each company.
c. During 2020, both companies faced problems resulted in having a decline in sales by
$50,000 and that affected rapidly to the net income during that year. Which company
would produce less net income?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F93c97cce-2e1a-404b-b247-c84b9a645fb5%2F52986ca2-5caa-41c6-8865-8166a126b9ad%2Fk2ztd4m_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The CVP income statements shown below are available for AX Company and ZY Company at
the beginning of 2020.
AX Company
ZY Company
Sales
$500,000
$500,000
Variable Costs
$110,000
$10,000
Contribution Margin
$390,000
$490,000
Fixed Costs
$100,000
$200,000
Net Income
$290,000
$290,000
Instructions
a. Using the breakeven point in dollar, determine which company could be in risk?
b. Determine the degree of operating leverage for each company.
c. During 2020, both companies faced problems resulted in having a decline in sales by
$50,000 and that affected rapidly to the net income during that year. Which company
would produce less net income?
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