6 Marks (Suggested Time 11 minutes): An investment banker is analyzing two companies that specialize in the production and sale of gourmet coffee and tea mixes. The first company, Freshest uses a labour-intensive approach, while Gently Stirred uses a mechanized system. CVP income statements for the two companies are shown below: Freshest Gently Stirred Sales $1,000,000 $1,000,000 Variable costs 700,000 250,000 Contribution margin 300,000 750,000 Fixed costs 150,000 600,000 Operating income $ 150,000 $ 150,000 The investment banker is interested in purchasing one of these companies. However, she is concerned about the effect that each company's cost structure might have on its profitability Instructions ( Show work) a) Calculate each company's degree of operating leverage (2 Marks) 4: b ) Determine each company's operating income if sales i) decrease by 10% (2 Marks) ii) increase by 20% (2 Marks) (Do not prepare income statements for part B. If an income statement is prepared no marks will be awarded) e 5: Paragraph B I UV A / . . . fixed cost / (fixed costs + variable costs) fresh EN W X