Problem 11-27A (Algo) Analyzing operating leverage LO 11-3, 11-4 Arnold Vimka 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 (8.800 units $30.00) Variable coat (8.800 units Xa) Contribution margin Tixed cont set income Company Name Larson Benson $ 19.00 $ 2.50 $ 264.000 $ 264,000 267,200) (B3,600) $ 96,000 $ 100,400 124,500). (100, 200) 572,200 $ 72,200 Required a. Use the contribution margin approach to compute the operating loverage for each firm b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 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 11 percent decrease in sales volume, assuming that the selling price romains unchanged. Compute the change in net income for each firm in dollar amount and in percentage (Noter 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 Ir the economy contracts in coming years, Larson and Banton will both suffer a 11 percent decrease in sales volume Prav 2013 !!! Next > Saved Net income $ 72,200 $ 72,200 Required a. Use the contribution margin approach to compute the operating leverage for eac b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 the selling price remains unchanged. Compute the change in net income for each 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 11 the selling price remains unchanged. Compute the change in net income for each Since the number of units decreases, both total revenue and total variable cost wil Complete this question by entering your answers in the tabs below. Required A Required B Required c Use the contribution margin approach to compute the operating leverage for each firm. (Re places.) Larson Benson Company Name Operating leverage Required 3 >
