The CVP income statements shown below are available for Billings Company and Bozeman Company.
Billings Co. Bozeman Co.
Sales revenue $600,000 $600,000
Variable costs
280,000
80,000
Contribution margin 320,000 520,000
Fixed costs
170,000
370,000
Net income
$150,000
$150,000
Compute the degree of operating leverage for each company. (Round answer to 3 decimal places, e.g. 1.150.)
Billings Co.
Bozeman
Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company.
Billings Co. Bozeman Co.
Sales $ $
Variable costs
Contribution margin
Fixed costs
Net income
$
$
1 Answer
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Compute the degree of operating leverage for each company. (Round answer to 3 decimal places, e.g. 1.150.)
Billings Co. 2.13
Bozeman 3.47
Degree of Operation Leverage = Contribution margin / Net income
Billings Co.
$320,000 / 150,000 = 2.13
Bozeman Co.
$520,000 / 150,000 = 3.47
Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company.
Billings Co. Bozeman Co.
Sales ............... ...........$660,000* ....$660,000
Variable costs ...... ........308,000** .......88,000***
Contribution margin ......352,000 ....... .572,000
Fixed costs .......... ....... .170,000 ........ 370,000
Net income ............. ....$182,000 .......$202,000
*($600,000 x 10% + 600,000)
**($280,000 x 10% + 280,000)
***($80,000 x 10% + 80,000)
