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P6-5A Viejo Company and Nuevo Company

Price: $2.50


The following CVP income statements are available for Viejo Company and Nuevo
Company.

  Viejo Company
Nuevo Company
Sales   500,000  500,000
Variable costs   280,000  180,000
Contribution margin   220,000  320,000
Fixed costs  180,000  280,000
Net income  40,000  40,000

Instructions
(a) Compute the break-even point in dollars and the margin of safety ratio for each company.
(b) Compute the degree of operating leverage for each company
(c) Assuming that sales revenue increases by 20%, prepare a CVP income statement for each company.
(d) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company.

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