Compute the Degree of Operating Leverage for Each Company
Question # 00766774
Posted By:
Updated on: 06/24/2020 08:49 AM Due on: 07/11/2020
The 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
(a) Compute the degree of operating leverage for each company and interpret your results.
(b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company.
(c) Discuss how the cost structure of these two companies affects their operating leverage and profitability.
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