The following CVP income statements are available for Retro Company and Modern Company:

Instructions
(a) Calculatethebreak-evenpointindollarsandthemarginofsafetyratioforeachcompany.
(b) Calculate the degree of operating leverage for each company and interpret your results.
(c) Assuming that sales revenue increases by 25%, prepare a variable cost income statement for each company.
(d) Assuming that sales revenue decreases by 25%, prepare a variable cost income statement for each company.
(e) Discuss how the cost structure of these two companies affects their operating leverage and profit ability.

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Modern Company $500,000 100,000 400,000 340,000 60,000 Retro Compan Sales revenue Variable costs Contribution margin Fixed costs Operating income $500,000 300,000 200,000 S 60,000