AutoSave . Off H Arial working_papers_Ch20 -... Search Sign in X File Home Insert Draw Design Layout References Mailings Review View Help Share Comments & Cut Arial v 11 ~ A" A Aa Ap Find AaBbCCD. AaBb( AaBbCcD AaBbC AaBbCcI AaBbC AaBbC AaBbC Paste [ Copy Gc Replace BIUvab X x A LA Emphasis 1 Heading 1 Heading 2 Heading 3 Heading 4 Heading 5 Heading 6 1 Heading 7 Dictate Editor Format Painter Select v Clipboard Font Paragraph Styles Editing Voice Editor . 1 .1 . 1 . 1 . 1 . 1 .2 . 1 . 3 . 1 .4 . 1 .5 . 1 .6. 1 . 7 . 1 . 8 . 1 .9 . 1 .10. 1 .11. 1 .12. 1 13. 1 .14 1 .15 1 16 1.17. 1 . 1.19. 1 . 1 .1 THIS is your "Bob - Homework" ... Prob 20-2B ... AND ... Prob 20-8B This problem is NOT in your textbook Change in Times Degree of Required: below this problem B (next page) are the "working papers" for you to complete and then submit to Sales Operating Change in he instructor .. by the due date. Leverage Jet Income Optional: Below the Prob B "working papers" (scroll 3 pages) are answers to similar, Prob A. 15% Decrease: f needed, refer to the Prob A to help you complete your problem B assignment. Traditional Yams 68,000 1.6 = 108,80 Auto-Yams 204,000 4.8 = 979,200 E20-16 An investment banker is analyzing two companies that specialize in the produc- tion and sale of candied yams. Traditional Yams uses a labor-intensive approach, and Auto 10% Increase: Yams uses a mechanized system. CVP income statements for the two companies are shown 88,00 below. Traditional Yams X |1.6 140,800 Auto-Yams 264,000 4.8 =1,267,200 Traditional Yams Auto-Yams Sales $400,000 $400,000 (c) Variable costs 320,000 160,000 Which company should the investment banker acquire ... and WHY ? (one word or one Contribution margin 80,000 240,000 sentence "answers" tell me you blew this off ... THINK, ANALYZE, RESPOND like a Fixed costs 30,000 190,000 manager or investor.) 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. 23 1 22. 1 21. 1 20 1 19. 1 .18. 1 .17. 1 .16 1 .15. 1 .14 1.13 1 .12. 1.11. 1.10. 1 .9 . 1 .8 . 1 .7 . 1 .6 . 1 .5. 1 Instructions a) Calculate each company's degree of operating leverage. Determine which company's cost structure makes it more sensitive to changes in sales volume. (b) Determine the effect on each company's net income if sales decrease by 15% and if sales increase by 10%. Do not prepare income statements. (c) Which company should the investment banker acquire? Discuss. (a) Contribution DIV Degree of Margin by Net Income = Operating Leverage Traditional Yams |80,000 50,00 = 1.6 Auto-Yams 240,000 50,000 = 4.8 Which company's cost structure makes it more sensitive to changes in sales volumes Page 2 of 8 1347 words " Focus - + 656 Type here to search GGBRO W 2:43 PM 11/03/2021 EA