$*$P$6\mathrm{.}51$A $($LO $1,2,3,6)$ The following CVP income statements are available for Oldham Company and Newton Company:

Oldham Company

Sales revenue

$$400,000$

Variable costs

$180,000$

Contribution margin

Fixed costs

$170,000$

Operating income

$ $50,000$

Newton Company

$$400,000$

$80,000$

$320,000$

$270,000$

$ $50,000$

Instructions

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

b$.$ Calculate the degree of operating leverage for each company and interpret your results.

c$.$ Assuming that sales revenue increases by $20\%,$ prepare a variable cost income statement for each company.

d$.$ Assuming that sales revenue decreases by $20\%,$ prepare a variable cost income statement for each company.

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