# The CVP income statements shown below are available for Billings Company and Bozeman Company.

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



• 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)