Compute the degree of operating leverage for each company

Question

The following CVP income statements are available for Chantal Corp. and Mantle, Inc.

                                              Chantal Corp.                     Mantle, Inc.

Sales revenue                          $700,000                          $700,000

Variable costs                             350,000                            210,000

Contribution margin                    350,000                            490,000

Fixed costs                                 175,000                            315,000

Net income                               $175,000                          $175,000

Instructions

(a) Compute the degree of operating leverage for each company.

(b) Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company.