An investment banker is analyzing two companies that specialize in the production and sale of candied apples. Old-Fashioned Apples uses a labour-intensive approach, and Mech-Apple uses a mechanized system. Variable costing income statements for the two companies are shown below: Old-Fashioned Apples Mech-Apple Sales $630,000 $630,000 Variable costs 441,000 126,000 Contribution margin 189.000 504,000 Fixed costs 139.000 454,000 Operating income $50,000 $50,000 The investment banker wants to acquire one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability. Your answer is correct. Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, e.g. 15.25) Old-Fashioned: Mech-Apple: 3.78 10.08 Determine which company's cost structure makes it more sensitive to changes in its sales volume. Present your answer in terms of the contribution margin ratio. Mech-Apple 30 % Old-Fashioned Apples Contribution margin ratio Mech Apple will be more sensitive to changes in sales volume 80 % (b) Your answer is partially correct. Determine the effect on each company's operating income if (1) Sales decrease by 15% (Round percentages to 2 decimal places, eg. 15.25%) Old-Fashioned: Operating Income decreases by Mech-Apple: Operating Income decreases by (2) Sales increase by 10%. (Round percentages to 2 decimal places, eg. 15.25%) Old-Fashioned: Operating income increases by Mech-Apple: Operating income increases by % or $ % or $ % or $ % or $