The following CVP income statements are available for Blanc Company and Noir Company. Blanc Company Noir…
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Question “The following CVP income statements are available for Blanc Company and Noir Company. Blanc Company Noir…”
The following CVP income statements are available for Blanc
Company and Noir Company.
Blanc Company | Noir Company | |||
Sales | $470,000 | $470,000 | ||
Variable costs | 282,000 | 235,000 | ||
Contribution margin | 188,000 | 235,000 | ||
Fixed costs | 169,200 | 216,200 | ||
Net income | $18,800 | $18,800 |
Calculate Contribution margin ratio.
Contribution Margin Ratio | ||
Blanc Company | ||
Noir Company |
Compute the break-even point in dollars for each company.
(Round answers to 0 decimal places, e.g.
5,125.)
Break-even Point | ||
Blanc Company | $ | |
Noir Company | $ |
Compute margin of safety ratio for each company.
(Round answers to 3 decimal places, e.g.
0.321.)
Margin of Safety Ratio | ||
Blanc Company | ||
Noir Company |
Compute the degree of operating leverage for each company.
(Round answers to 2 decimal places, e.g.
1.56.)
Degree of Operating Leverage | ||
Blanc Company | ||
Noir Company |
Assuming that sales revenue increases by 20%, prepare a CVP
income statement for each company. (Enter negative
amounts using either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)
Assuming that sales revenue decreases by 20%, prepare a CVP
income statement for each company. (Enter negative
amounts using either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)
Answer
Ans. 1 | Contribution margin ratio = Contribution margin / Total sales * 100 | ||||
Blanc Company | $188,000 / $470,000 * 100 | 40% | |||
Noir Company | $235,000 / $470,000 * 100 | 50% | |||
Ans. 2 | Breakeven point in sales = Fixed cost / Contribution margin ratio | ||||
Blanc Company | $169,200 / 40% | $423,000 | |||
Noir Company | $216,200 / 50% | $432,400 | |||
Ans. 3 | Margin of Safety = (Actual Sales – Break Even Sales) / Actual Sales * 100 | ||||
Blanc Company | ($470,000 – $423,000) / $470,000 * 100 | ||||
$47,000 / $470,000 * 100 | |||||
10.000% | |||||
Noir Company | ($470,000 – $432,400) / $470,000 * 100 | ||||
$37,600 / $470,000 * 100 | |||||
8.000% | |||||
Ans. 4 | Operational leverage = Contribution margin/Operating income | ||||
Blanc Company | $188,000 / $18,800 | 10.00 | |||
Noir Company | $235,000 / $18,800 | 12.50 | |||
Ans. 5 | *An increase in sales revenue will not impact the ratio of variable costs and contribution margin | ||||
Sales | |||||
Blanc Company’s contribution margin ratio is 40%. This means that variable costs are covered by Blanc | |||||
60% (i.e. 60% (i.e. | |||||
The contribution margin ratio equals 50% of sales. This means that variable costs are also 50%. | |||||
50% (i.e. Noir company sales: 1 – 50% | |||||
BLANC COMPANY | |||||
CVP Income Statement | |||||
Particulars | Amount | ||||
Sales ($470,000 * 1.20) | $564,000 | ||||
Variable expenses ($564,000*60%) | -$338,400 | ||||
Margin of contribution | $225,600 | ||||
Fixed expenses | -$18,800 | ||||
Net operating income | $206,800 | ||||
NOIR COMPANY | |||||
CVP Income Statement | |||||
Particulars | Amount | ||||
Sales ($470,000 * 1.20) | $564,000 | ||||
Variable expenses ($564,000*50%) | -$282,000 | ||||
Margin of contribution | $282,000 | ||||
Fixed expenses | -$18,800 | ||||
Net operating income | $263,200 | ||||
*Fixed costs always remain constant. | |||||
Conclusion
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