An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Wildhorse Yams uses a labor-intensive approach, and Blossom Yams uses a mechanized system. CVP income statements for the two companies are shown below. Sales Variable costs Contribution margin Fixed costs Net income Wildhorse Yams $392,000 319,000 73,000 23,000 $50,000 Blossom Yams $392,000 157,000 235,000 185,000 $50,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Wildhorse Yams uses a
labor-intensive approach, and Blossom Yams uses a mechanized system. CVP income statements for the two companies are shown
below.
Sales
Variable costs
Contribution margin
Fixed costs
Net income
Wildhorse
Yams
$392,000
319,000
73,000
23,000
$50,000
Blossom Yams
$392,000
157,000
235,000
185,000
$50,000
The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each
company's cost structure might have on its profitability.
Transcribed Image Text:An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Wildhorse Yams uses a labor-intensive approach, and Blossom Yams uses a mechanized system. CVP income statements for the two companies are shown below. Sales Variable costs Contribution margin Fixed costs Net income Wildhorse Yams $392,000 319,000 73,000 23,000 $50,000 Blossom Yams $392,000 157,000 235,000 185,000 $50,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability.
Determine the effect on each company's net income if sales decrease by 15% and if sales increase by 10%. Assume that sales
fluctuations are attributable to changes in units sold. Do not prepare income statements. (Round answers to 2 decimal places, e.g.
10.52. If % change is negative, enter amount with either a negative sign or parenthesis, e.g. -10.52 or (10.52).)
Sales decrease by 15%
Wildhorse Yams
Blossom Yams
Sales increase by 10%
Wildhorse Yams
Blossom Yams
% Change in Net Income
%
%
%
%
Transcribed Image Text:Determine the effect on each company's net income if sales decrease by 15% and if sales increase by 10%. Assume that sales fluctuations are attributable to changes in units sold. Do not prepare income statements. (Round answers to 2 decimal places, e.g. 10.52. If % change is negative, enter amount with either a negative sign or parenthesis, e.g. -10.52 or (10.52).) Sales decrease by 15% Wildhorse Yams Blossom Yams Sales increase by 10% Wildhorse Yams Blossom Yams % Change in Net Income % % % %
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