Operating Leverage Ludlam Company and Kassandra Company both make school desks. They have the same production capacity, but Ludlam is more automated than Kassandra. At an output of 2,500 desks per year, the two companies have the following costs:

Assuming that both companies sell desks for $100 each and that there are no other costs or expenses for the two firms, complete the following:
1. Which company will lose the least money if production and sales fall to 1,000 desks per year?
2. What would be each company’s profit or loss at production and sales levels of 1,000 desks per year?
3. What would be each company’s profit or loss at production and sales levels of 4,000 desks per year?

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Fixed costs.. Variable costs at $20 per desk Variable costs at $60 per desk Total cost.... Unit cost (2,500 desks) Ludlam $137,500 50,000 Kassandra $ 37,500 150,000 $187,500 $187,500 $ 75 $ 75