John planned to invest in one of two operations. However, he discovered that although the two operations had the same level of sales and the same net income, they had very different cost structures.

Each owner gave John their most recent income statement.

Operation A Operation B

$ $

Revenue $750,000 $750,000

Variable costs 375,000 225,000

Fixed Costs 300,000 450,000

Net Income $ 75,000 $ 75,000

Required:

1. Calculate the net income for each operation if sales were (show your work)
   1. $850,000 (3 marks)
   2. $650,000 (3 marks)

2. Discuss which operation John should buy (be very specific, and explain your choices). (3 marks)