Assignmt. 16 Chapter 16 eBook Degree of Operating Leverage, Percent Change in Profit 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, materials are less expensive, but fixed overhead is higher. Process 2 involves purchasing all subcomponents from outside suppliers. The direct materials costs are higher, but fixed factory overhead is considerably lower. Relevant data for a sales level of 30,000 units follow: Process 1 Process 2 Sales Variable expenses Contribution margin Less total fixed expenses $8,100,000 2,820,000 $8,100,000 4,020,000 $5,280,000 $4,080,000 3,752,720 1,397,430 Operating income $1,527,280 $270 $94 $176 $2,682,570 $270 $134 $136 Unit selling price Unit variable cost Unit contribution margin Required: 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? Process 1 Process 2 What will be the increase in operating income for each system? Round your answers to the nearest dollar. Process 1 00 66 00 00 6600 Process 2 What will be the total operating income 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 percentage will operating income decrease for each process? Process 1 Process 2 What will be the total operating Income 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