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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
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. Traditional Yams Auto-Yams Sales $403,000 $403,000 Variable costs 315,000 155,000 Contribution margin 88,000 248,000 Fixed costs 38,000 198,000 Net income $50,000 $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. Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, eg. 1.15.) Degree of Operating Leverage
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