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Exercise 6-16 An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Traditional Yams uses a labor-intensive approach,
Exercise 6-16 An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Traditional Yams uses a labor-intensive approach, and Auto- Yams uses a mechanized system. CVP income statements for the two companies are shown below Traditional Yams Sales Variable costs Contribution margin Fixed costs Net income $391,000 329,000 62,000 29,000 $33,000 Auto-Yams $391,000 158,000 233,000 200,000 $33,000 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 Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, e.g. 1.15.) Degree of Operating Leverage Traditional Yams Auto-Yams LINK TO TEXT VIDEO: SIMILAR EXERCISE
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