The following variable costing income statements are available for American Company and National Company.

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 and interpret your results.
(c) Assuming that sales revenue increases by 30%, prepare a variable costing income statement for each company.
(d) Assuming that sales revenue decreases by 30%, prepare a variable costing income statement for each company.
(e) Discuss how the cost structure of these two companies affects their operating leverage andprofitability.

American Company National Company Sales Variable costs 1,000,000 500,000 500,000 300,000 S 200,000 $1,000,000 150,000 850,000 650,000 S 200,000 Contribution margin Fixed costs Net income