The CVP income statements shown below are available for Arms

The CVP income statements shown below are available for Armstrong Company and Contador Company Sales Variable costs Contribution margin Fixed costs Net income Co. $495,000 239,000 256,000 159,000 $97,000 $495,000 51,000 444,000 347,000 $97,000 (a) Compute the degree of operáting leverage for each company. (Round answers to 3 decímal places, e.g. 1.150.) Armstrong 2.63 Contador 4.57 (b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company. Armstrong Company Contador Company xed Costs

Solution

Answer a. Degree of Operating Leverage = Contribution / Net Income Armstrong = $256,000 / $97,000 = 2.64 (Approx.) Contador = $444,000 / $97,000 = 4.58 (Approx.) Answer b. Armstrong Company Contador Company Sales Revenue - $495,000 X 110%    544,500.00    544,500.00 Variable Costing    262,900.00      56,100.00 Contribution Margin    281,600.00    488,400.00 Fixed Costs    159,000.00    347,000.00 Net Income    122,600.00    141,400.00 Variable Costing Armstrong = $239,000 X 110% = $262,900 Contador = $51,000 X 110% = $56,100