Billot Telephone was formed in the 1940s to bring telephone services to remote areas of

the US Midwest. The early equipment was quite primitive by today's standards. All calls

were handled manually by operators, and all customers were on party lines. By the

1970's, however, all customers were on private lines, ad mechanical switching devices

handled routine local and long distance calls. Operators remained available for directory

assistance, credit card calls and emergencies. In the 1990s Billot Telephone added local

internet connections as an optional service to its regular customers. It also established

an optional cellular service, identified as Home Ranger.

1. Using a unit level analysis, develop a graph with two lines representing

Billot's cost structure. (Be sure to label the axes and lines. You must develop

the appropriate data to support the answers in your graph.)

In the 1940s

In the late 1990s

B. With sales revenues as the independent variable, what is the likely impact of the changed cost structure on Billot's:

i. Contribution Margin Percent

ii. Break Even Point

C. Discuss how the change in the cost structure affected Billot's operating leverage and how this affects profitability under rising or falling sales scenarios.

D. Provide 3 specific managerial decisions that can have an impact on the degree of operating leverage of a firm.