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Ex. (8): Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000. Kelley Company's costs consist of $40,000 fixed and $100,000 variable, while Mason Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%? Prepare income statements and compute degree of operating leverage to assess. Ex. (9): A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected? Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives. Alternative #1 Alternative #2 Variable costs per unit ........ $12 Fixed costs .......... $240,000 $140,000 Selling price per unit. $20 $20 $8 Ex. (10): Legacy Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales needed to generate an after-tax income of $33,000. *************** Mohamed Farouk, Ph.D