Calculate the degree of operating leverage for company

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The following CVP income statements are available for Molina Corp. and Libasci Ltd. :

 

Molina Corp.

Libasci Ltd.

Sales Revenue

$400,000

$400,000

Variable Costs

180,000

80,000

Contribution Margin

220,000

320,000

Fixed Costs

170,000

270,000

Operating Income

50,000

50,000

Required:

Problem 1. Calculate the break-even point in dollars and the margin of safety ratio for each company.

Problem 2. Calculate the degree of operating leverage for each company and interpret your results.

Problem 3. Assuming that sales revenue increases by 20%, prepare a variable cost income statement for each company.

Problem 4. Assuming that sales revenue decreases by 20%, prepare a variable cost income statement for each company.

Problem 5. Discuss how the cost structure of these two companies affects their operating leverage and profitability.

Reference no: EM132460377

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