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 $33,000$ units follow:

Process $1$ Process $2$

Sales $$8,844,000$ $$8,844,000$

Variable expenses $3,267,0005,016,000$

Contribution margin $$5,577,000$ $$3,828,000$

Less total fixed expenses $3,721,1301,434,320$

Operating income $$1,855,870$ $$2,393,680$

Unit selling price $$268$ $$268$

Unit variable cost $$99$ $$152$

Unit contribution margin $$169$ $$116$

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 $1$ fill in the blank $1$

Process $2$ fill in the blank $2$

$2.$ Suppose that sales are $20$ percent higher than budgeted. By what percentage will operating income increase for each process?

Process $1$ fill in the blank $3$

$\%$

Process $2$ fill in the blank $4$

$\%$

What will be the increase in operating income for each system? Round your answers to the nearest dollar.

Process $1$ $fill in the blank $5$

Process $2$ $fill in the blank $6$

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 $1$ $fill in the blank $7$

Process $2$ $fill in the blank $8$

$3.$ What if unit sales are $10$ percent lower than budgeted? By what percentage will operating income decrease for each process?

Process $1$ fill in the blank $9$

$\%$

Process $2$ fill in the blank $10$

$\%$

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 $1$ $fill in the blank $11$

Process $2$ $fill in the blank $12$