Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

London and Paris are the owners of the London Processing Company and the Paris Manufacturing Company, respectively. These companies manufacture and sell the same product,

image text in transcribed
London and Paris are the owners of the London Processing Company and the Paris Manufacturing Company, respectively. These companies manufacture and sell the same product, and competition between the two owners has always been friendly. Cost and profit data have been freely exchanged. Uniform selling prices have been set by market conditions. Mr. London and Ms. Paris differ markedly in their management thinking. Operations at London are highly mechanized, and the direct labor force is on a fixed-salary basis. Paris uses manual hourly-paid labor for the most part, and pays incentive bonuses. London's salesmen are paid a fixed salary, whereas Paris salesmen are paid small salaries plus commissions. Ms. Paris takes pride in her ability to adapt her costs to fluctuations in sales volume and has frequently chided Mr. London on London "inflexible overhead." During 2015, both firms reported the same profit on sales of $618, 750. However, when comparing results at the end of 2016, Ms. Paris was startled by the following results: On the assumption that operating inefficiencies m have existed, Ms. Paris and her accountant made a thorough investigation of costs, but could not uncover any evidence of costs that were out of line. At a loss to explain the difference in profits on a much higher increase in sales volume, they have asked you to prepare an explanation. You find that the fixed costs recorded over the two-year period were $433, 125 each year for London and $61, 875 each year for Paris. REQUIRED: Show all calculations and use good format! Redo the income statements emphasizing contribution margin. Calculate break-even point for each company. Calculate degree of operating leverage at a revenue level of $618, 750. Calculate the volume of sales that Paris would have had to have in 2016 to achieve the profit of $160, 875 realized by London in 2016. Comment on the relative future positions of the two companies when there are as well as increases in sales volume

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Agile Audit Transformation And Beyond

Authors: Toby DeRoche

1st Edition

1032062894, 978-1032062891

More Books

Students also viewed these Accounting questions

Question

Influences on Nonverbal Communication?

Answered: 1 week ago