Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Textbook Question
Chapter 6, Problem 6.5AP
The following CVP income statements are available for Blanc Company and Noir Company.
| Blanc Company | Noir Company | |
| Sales | $500,000 | $500,000 |
| Variable costs | 280,000 | 180,000 |
| Contribution margin | 220,000 | 320,000 |
| Fixed costs | 170,000 | 270,000 |
| Net income | $ 50,000 | $ 50,000 |
Instructions
(a) Compute the break-even point in dollars and the margin of safety ratio (round to 3 places) 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 and profitability.
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Students have asked these similar questions
The following CVP income statements are available for Cullumber Corp. and Ivanhoe, Inc.
Cullumber
Ivanhoe, Inc.
Corp.
Sales revenue
$742,000
$742,000
Variable costs
371,000
225,250
Contribution margin
371,000
516,750
Fixed costs
238,500
384,250
Net income
$132,500
$132,500
(a)
Compute the degree of operating leverage for each company. (Round answers to 1 decimal place, e.g. 15.5.)
Degree of
Operating Leverage
Cullumber
Ivanhoe
The CVP income statement shown below are available for ABC Company and DEF
Company.
ABC Company.
DEF Company.
Sales revenue
Php 600,000
Php 600,000
Variable cost
320,000
120,000
Contribution margin
280,000
480,000
Fixed cost
180,000
380,000
Net income
Php 100,000
Php 100,000
Assuming that sales revenue is increases by 10 percent, calculate the net income of DEF Company,
assuming that sales revenue is increases by 10 percent, find out the net income of ABC Company.
The following CVP income statements are available for Cullumber Corp. and Ivanhoe, Inc.
Cullumber
Ivanhoe, Inc.
Corp.
Sales revenue
$742,000
$742,000
Variable costs
371,000
225,250
Contribution margin
371,000
516,750
Fixed costs
238,500
384,250
Net income
$132,500
$132,500
(a)
Your answer is correct.
Compute the degree of operating leverage for each company. (Round answers to 1 decimal place, e.g.
15.5.)
Degree of
Operating Leverage
Cullumber
2.8
Ivanhoe
3.9
eTextbook and Media
Assistance Used
Attempts: 2 of 5 used
(b)
Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company. (Do not
round intermediate calculations.)
Cullumber Corp.
Ivanhoe , Inc.
2$
$
2$
$
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Chapter 6 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 6 - What is meant by CVP analysis?Ch. 6 - Provide three examples of management decisions...Ch. 6 - Prob. 3QCh. 6 - Describe the features of a CVP income statement...Ch. 6 - The traditional income statement for Wheat Company...Ch. 6 - Prob. 6QCh. 6 - What is meant by the term sales mix? How does...Ch. 6 - Prob. 8QCh. 6 - Prob. 9QCh. 6 - Prob. 10Q
Ch. 6 - What is the theory of constraints? Provide some...Ch. 6 - What is meant by "cost structure? Explain how a...Ch. 6 - What is operating leverage? How does a company...Ch. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Distinguish between absorption costing and...Ch. 6 - Prob. 18QCh. 6 - Prob. 19QCh. 6 - Prob. 20QCh. 6 - Prob. 21QCh. 6 - Prob. 22QCh. 6 - Determine missing amounts for contribution margin....Ch. 6 - Hamby Inc. has sales of 2,000,000 for the first...Ch. 6 - Prob. 6.3BECh. 6 - Prob. 6.4BECh. 6 - Prob. 6.5BECh. 6 - Prob. 6.6BECh. 6 - NoFly Corporation sells three different models of...Ch. 6 - Information for NoFly Corporation is given in...Ch. 6 - Prob. 6.9BECh. 6 - Prob. 6.10BECh. 6 - In Marshall Company, data concerning two products...Ch. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Compute product costs under variable costing. (LO...Ch. 6 - Compute product costs under absorption costing....Ch. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Victoria Company reports the following operating...Ch. 6 - Prob. 6.2DICh. 6 - Zoom Corporation manufactures and sells three...Ch. 6 - Prob. 6.4DICh. 6 - Prob. 6.1ECh. 6 - In the month of June, Jose Heberts Beauty Salon...Ch. 6 - Compute net income under different alternatives....Ch. 6 - Prob. 6.4ECh. 6 - Prob. 6.5ECh. 6 - Yard Tools manufactures lawnmowers, weed-trimmers,...Ch. 6 - PDQ Repaint has 200 auto-maintenance service...Ch. 6 - Express Delivery is a rapidly growing delivery...Ch. 6 - Prob. 6.9ECh. 6 - Determine break-even point in dollars for two...Ch. 6 - Mars Company manufactures and sells three...Ch. 6 - Compute contribution margin and determine the...Ch. 6 - Helena Company manufactures and sells two...Ch. 6 - The CVP income statements shown below are...Ch. 6 - Casas Modernas of Juarez, Mexico, is contemplating...Ch. 6 - Prob. 6.16ECh. 6 - Compute product cost and prepare an income...Ch. 6 - Prob. 6.18ECh. 6 - Crate Express Co. produces wooden crates used for...Ch. 6 - Midlands Inc. had a bad year in 2016. For the...Ch. 6 - Lorge Corporation has collected the following...Ch. 6 - Determine break-even sales under alternative sales...Ch. 6 - Prob. 6.4APCh. 6 - The following CVP income statements are available...Ch. 6 - Bonita Beauty Corporation manufactures cosmetic...Ch. 6 - Prepare income statements under absorption costing...Ch. 6 - Dilithium Batteries is a division of Enterprise...Ch. 6 - CURRENT DESIGNS Current Designs manufactures two...Ch. 6 - Prob. 6.1BYPCh. 6 - Managerial Analysis For nearly 20 years,...Ch. 6 - Real-World Focus In a recent report, the Del Monte...Ch. 6 - The June 8, 2009, edition of the Wall Street...Ch. 6 - Prob. 6.6BYPCh. 6 - Ethics Case Brett Stem was hired during January...Ch. 6 - Prob. 6.9BYP
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