1. The following CVP income statements are available for ABC Company and XYZ Company. Sales Variable costs Contribution margin Fixed costs Operating income ABC Company CVP I/S for 2020 $500,000 300,000 200,000 180,000 $ 20,000 XYZ Company CVP I/S for 2020 $500,000 180,000 320,000 300,000 $ 20,000 a) Compute the break-even point in dollars and the margin of safety ratio for each company. b) Compute the degree of operating leverage for each company. c) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each comnany

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1. The following CVP income statements are available for ABC Company and XYZ
Company.
АВС Companу
Sales
Variable costs
Contribution margin
Fixed costs
Operating income
CVP I/S for 2020
$500,000
300,000
200,000
180,000
$ 20,000
XYZ Company
CVP I/S for 2020
$500,000
180,000
320,000
300,000
$ 20,000
(a) Compute the break-even point in dollars and the margin of safety ratio for each
company.
(b) Compute the degree of operating leverage for each company.
(c) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for
each company-
(d) Assuming that sales revenue increases by 20%, calculate the operating incomes of the
two companies without preparing income statement. (Use DOL)
www
www ww
www
Transcribed Image Text:1. The following CVP income statements are available for ABC Company and XYZ Company. АВС Companу Sales Variable costs Contribution margin Fixed costs Operating income CVP I/S for 2020 $500,000 300,000 200,000 180,000 $ 20,000 XYZ Company CVP I/S for 2020 $500,000 180,000 320,000 300,000 $ 20,000 (a) Compute the break-even point in dollars and the margin of safety ratio for each company. (b) Compute the degree of operating leverage for each company. (c) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company- (d) Assuming that sales revenue increases by 20%, calculate the operating incomes of the two companies without preparing income statement. (Use DOL) www www ww www
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