Compute the degree of operating leverage for each company

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Reference no: EM13889208

The CVP income statements shown below are available for Armstrong Company and Contador Company.


Armstrong Co.

Contador Co.

Sales

$500,000

$500,000

Variable costs

240,000

50,000

Contribution margin

260,000

450,000

Fixed costs

160,000

350,000

Net income

$100,000

$100,000

Instructions

(a) Compute the degree of operating leverage for each company and interpret your results.

(b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company.

(c) Discuss how the cost structure of these two companies affects their operating leverage and profitability.

Reference no: EM13889208

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