Home / Questions / The following CVP income statements are available for Viejo Company and NuevoCompany.Viejo
The following CVP income statements are available for Viejo Company and NuevoCompany.Viejo Company Nuevo CompanySales $500,000 $500,000Variable costs 280,000 180,000Contribution margin 220,000 320,000Fixed costs 180,000 280,000Net income $ 40,000 $ 40,000Instructions(a) Compute the break-even point in dollars and the margin of safety ratio for eachcompany.(b) Compute the degree of operating leverage for each company and interpret your results.(c) Assuming that sales revenue increases by 20%, prepare a CVP income statement foreach company.(d) Assuming that sales revenue decreases by 20%, prepare a CVP income statement foreach company.(e) Discuss how the cost structure of these two companies affects their operatingleverage and profi tability.
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