The CVP income statements shown below are available for Armstrong Company and Contador Company. Armstrong Co. Contador Co. Sales $505,000 $505,000 Variable costs 247,000 49,000 Contribution margin 258,000 456,000 Fixed costs 163,000 361,000 Net income $95,000 $95,000 (a) Compute the degree of operating leverage for each company. (Round answers to 3 decimal places, e. g. 1.150.) Degree of Operating Leverage Armstrong Contador (b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each company. Armstrong Company Contador Company $ $ $ $ Click if you would like to Show Work for this question: Open Show Work

Explanation:

a. The computation of the operating leverage is shown below:

As we know that

Degree of operating leverage = Contribution margin ÷ Net income

For Armstrong Company, it is

= $258,000 ÷ $95,000

= 2.715

For Contador Company, it is

= $456,000 ÷ $95,000

= 4.80

b. Now the variable costing income statement is

For Armstrong Company

Sales ($505,000 × 110%)                                  $555,500

Less: Variable cost  ($247,000 × 110%)           ($271,700)

Contribution margin                                         $283,800

Less: Fixed cost                                               ($163,000)

Net income                                                      $120,800

For Contador Company

Sales ($505,000 × 110%)                                  $555,500

Less: Variable cost  ($49,000 × 110%)           ($53,900)

Contribution margin                                         $501,600

Less: Fixed cost                                               ($361,000)

Net income                                                      $140,600

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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