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problem: Understanding the effects of operating leverage High Tech, Company, & Old time firm compete with in the same industry & had the following operating results in 2008:

 

High Tech

Old-time Co.

Sales

$2,100,000

$2,100,000

Variable expenses

420,000

1,260,000

Contribution Margin

$1,680,000

$840,000

Fixed expenses

1,470,000

630,000

Operating income

$210,000

$210,000

Required;                                                                                                        
[1] Describe why an equal percentage (%) increase [or decrease] in sales for each firm would have such differing effects on operating income.

[B] Compute the ratio of contribution margin to operating income for each firm in 2008. [Suggestion:  Divide contribution margin by operating income.]

[C] Multiply the expected increase in sales of 20 percent for 2009 by the ratio of contribution margin to operating income for 2008 find outd in requirement F) for each company. [Suggestion:  Multiply your answer in requirement F by .2]

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  • Category:- Cost Accounting
  • Reference No.:- M922470

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