16.4

Degree of Operating Leverage, Percent Change in Pront Ringsmith Company is considering two different processes to make its product-process 1 and process 2 . Process 1 requires Ringsmith to manufacture subcomponents of the product in-house. As a result, materlais are less expensive, but fxed overthead is highec, Process 2 involves purchasing all subcomponents from outside suppliens. The direct materials costs are higher, but fixed factory overhead is considerably lower. Relevant data for a sales level of 26,000 units follow: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subsequent calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? What will be the increase in operating income for each system? Round your answers to the nearest dollar. Process 1 Process 2 What will be the total operating incame for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2 3. What if unit sales are 10 percent lower than budgeted? By what percentoge will operating income decrease for each process? What will be the total operating income for each process? Round your intermedlate calculations and final answers to the nearest dollar. Use the rounded answers in subseduent calculations. Process 1 9 Process 2