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Problem 11-27A (Algo) Analyzing operating leverage LO 11-3, 11-4 Amold Vimka is a venture capitalist facing two altemative investment opportunities. He intends to invest $1
Problem 11-27A (Algo) Analyzing operating leverage LO 11-3, 11-4 Amold Vimka is a venture capitalist facing two altemative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility He asks you to analyze the following financial data for the past year's operations of the two firms he is considering and give him some business advice Variable cost per Wit () Sales revenue (8,600 units $31.00) Variable cost (5,600 units) Contribution margin Fixed cost Het Income Company Name Larson Benson $ 19.00 $ 9.50 $ 266,600 $266,600 163, 400) (81,700) $ 105,200 $184,900 (26,000) (106,500) $ 78,00 578,400 Required o. Use the contrbution margin approach to compute the operating leverage for each firm b. If the economy expands in coming years, Larson and Benson will both enjoy a 10 percent per year increase in sales, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage (Note Since the number of units increases, both revenue and variable cost will increase) c. If the economy contracts in coming years, Larson and Benson will both suffer a 10 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage (Note Since the number of units decreases, both total revenue and total variable cost will decrease.) Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below. Required A Faired B Required Use the contribution margin approach to compute the operating leverage for each firm. (Round your answers to 2 decimal places.) Company Name Larson Operating leverage Benson Required B > Company Name Larson Benson 19.00 S 9.50 Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net income Percentage change 4 Company Name Larson Benson $ 19.00 $ 9.50 Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net income Percentage change % %
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