Problem 11-27A (Algo) Analyzing operating leverage LO 11-3, 11-4 Arnold Vinka is a venture capitalist facing two alternative 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 unit (a) Sales revenue (0,200 units X $31.00) Variable cost (1,200 units xa) Contribution martin Fixed cost Net Income Company Name Larson Benson 520.00 5 10.00 $ 254,200 1 254,200 164.000) 02.000) $ 90,200 172,200 (26.000 (106,000 $ 65,400 565.400 Required 6. Use the contribution 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) Required o. Use the contribution 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. Required A Required B Required If the economy expands in coming years, Larson and Berson 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.) (Round "Percentage answer to 2 decimal place (.., 2345 should be entered as 23.45). Round final answers to nearest whole dollar) Show less Company Name Larson Benson 20.00 5 10.00 $ Valable cost per unit Sales revenue Variable cost Contribution margin Fored cost Net income Percentage change Complete this question by entering your answers in the tabs below. Required A Required B Requiged Required 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.) (Round "Percentage" answer to 2 decimal place (I... 2345 should be entered as 23.45). Round final answers to nearest whole dollar) Show less Company Name Larson Benson $ 20.00 5 10.00 Variable cost per unit Sales revenue Variable cost Contribution margin Faced cost Not income Percentage change
