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(Solution Download) An investment banker is analyzing two companies that specialize in the production and sale of candie


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

An investment banker is analyzing two companies that specialize

 

in the production and sale of candied yams. Traditional Yams uses a

 

labor-intensive approach, and Auto-Yams uses a mechanized system.

 

CVP income statements for the two companies are shown below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional Yams

 

 

Auto-Yams

 

Sales$400,000$400,000
Variable costs320,000160,000
Contribution margin80,000240,000
Fixed costs30,000190,000
Net income$50,000$50,000

 


 


 

The investment banker is interested in acquiring one of these

 

companies. However, she is concerned about the impact that each

 

companyAc??cs cost structure might have on its profitability.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LINK TO TEXT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculate each companyAc??cs degree of operating leverage.

 

(Round answers to 2 decimal places, e.g.

 

1.15.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Degree of Operating Leverage

 

Traditional Yams

 

 

Auto-Yams

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LINK TO TEXT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Determine the effect on each companyAc??cs net income if sales

 

decrease by 15% and if sales increase by 10%. Do not prepare income

 

statements. (Round answers to 2 decimal place, e.g.

 

10.52%. If % change is negative, enter amount with either a

 

negative sign or parenthesis, e.g. -10.52 or

 

(10.52).)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change in Net Income

 

Sales decrease by 15%
   Traditional Yams

 

 

%
   Auto-Yams

 

 

%
Sales increase by 10%
   Traditional Yams

 

 

%
   Auto-Yams

 

 

%

 

 

 

 

 

 

 

 

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question:

 

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