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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

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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 29,000 units follow: Process 1 Process 2 Sales $7,308,000 $7,308,000 Variable expenses 2,668,000 3,770,000 Contribution margin $4,640,000 $3,538,000 Less total fixed expenses 3,673,745 1,487,020 Operating income $966,255 $2,050,980 Unit selling price $252 $252 Unit variable cost $92 $130 Unit contribution margin $160 $122 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 4.8 Process 2 1.7 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1 96 34 % % Process 2 What will be the increase in operating income for each system? Round your answers to the nearest dollar. Process 1 $ 927,605 Process 2 $ 697,333 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 1,893,860 Process 2 $ 2,748,313 3. What if unit sales are 10 percent lower than budgeted? By what percentage will operating income decrease for each process? Process 1 48 % Process 2 17 % What will be the total operating income for each process? Round your answers to the nearest dollar. Process 1 $ 966,255 X Process 2

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