(MS; DOL; PV graph) You are considering buying one of two local firms (VPI and TECH). VPI uses a substantial amount of direct labor in its manu¬ facturing operations and its salespeople work on commission. TECH uses the latest automated technology in manufacturing; its salespeople are salaried. The following financial information is available for the two companies:

a. Recast the income statements into a variable costing format.

b. What is break-even sales for each firm for each year?
C. Assume that you could acquire either firm for $1,200,000, and you want an after-tax return of 12 percent on your investment. Determine what sales level for each firm would allow you to reach your goal.

d. What is the margin of safety for each firm for each year? What is the de¬ gree of operating leverage?

e. Assume that product demand for 2007 is expected to rise by 15 percent from the 2006 level. What will be the expected net income for each firm?

f. Assume that product demand for 2007 is expected to fall by 20 percent from the 2006 level. What will be the expected net income for each firm?
g. Prepare a profit-volume graph for each firm.

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Sales Expenses including taxes Net income 2005 VPI TECH 2006 2005 2006 $600,000 $960,000 $600,000 $840,000 (528,000) (823,200) (528,000) (667,200) $ 72,000 $136,800 $ 72,000 $172,800 After examining cost data, you find that the fixed costs for VPI are $60,000; the fixed costs for TECH are $300,000. The tax rate for both companies is 40 percent.