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E6-14 Armstrong Company

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E6-14 The CVP income statements shown below are available for Armstrong Company
and Contador Company.

  Armstrong Co.  Contador Co. 
Sales Variable costs   500,000  500,000
Variable costs   240,000  50,000
Contribution margin  260,000  450,000
Fixed costs 160000 350000
Net income  100,000  100,000

(a) Compute the degree of operating leverage for each company
(b) Assuming that sales revenue increases by 10%, prepare a variable costing income
statement for each company.

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