Cornerstone Exercise 16.7 (Algorithmic) Degree of Operating Leverage, Percent Change in Profit Ringsmith Company is considering two different processes to make its productprocess 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 39,000 units follow: Process 1 Process 2 Sales $10,140,000 $10,140,000 Varoable expenses 4,134,000 5,226,000 Contribution margin $6,006,000 $4,914,000 Less total fixed expenses 3,773,780 1,465,940 Operating income $2,232,220 $3,448,060 Unit selling price $260 $260 Unit variable cost $106 $134 Unit contribution margin $154 $126 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 2.7 Process 2 1.4 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1 54 % Process 2 28 % What will be the increase in operating income for each system? Round your answers to the nearest dollar. 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 $ 3437618.8 Process 2 $ 4413516.8 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 answers to the nearest dollar. Process 1 $ Process 2 $