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. VP income statements for the two companies are shown below.

Sales

Variable costs

Contribution margin

Fixed costs

Net income

Traditional Yams

$400,000

320,000

80,000

30,000

$50,000

Auto-Yams

$400,000

160,000

240.000

190,000

$50,000

The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each

company's cost structure might have on its profitability.

Traditional Yams

Auto-Yams

Degree of Operating Leverage

1.60

4.80

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. Auto-Yams Sales $400,000 Traditional Yams $400,000 320,000 80,000 Variable costs Contribution margin Fixed costs Net income 160,000 240,000 190,000 $50,000 30,000 $50,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability, Degree of Operating Leverage 1.60 Traditional Yams Auto-Yams 4.80 Determine which company's cost structure makes it more sensitive to changes in sales volume. B 1W T F IEEE 2 + [ Words) Which company should the investment banker acquire? Discuss. B 1 VTT I. a E == 99 E