An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Carla Vista Yams uses labor-intensive approach, and Sandhill Yams uses a mechanized system. CVP income statements for the two companies are shown below. Carla Vista Yams Sandhill Yams Sales $391.000 $391,000 Variable costs 322,000 164,000 Contribution margin 69,000 227,000 Fixed costs 19,000 177,000 Net income $50,000 $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. (a1) Your answer is correct. Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, eg. 1.15) Degree of Operating Leverage Carla Vista Yams Sandhill Yams (b) eTextbook and Media Your answer is incorrect. 1.38 4.54 Attempts: 1 of 3 used 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, eg 10.52. If % change is negative, enter amount with either a negative sign or parenthesis, eg 10.52 or (1052)) Sales decrease by 15% Carla Vista Yams % Change in Net Income Sandhill Yams Sales increase by 10% Carla Vista Yams Sandhill Yams
An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Carla Vista Yams uses labor-intensive approach, and Sandhill Yams uses a mechanized system. CVP income statements for the two companies are shown below. Carla Vista Yams Sandhill Yams Sales $391.000 $391,000 Variable costs 322,000 164,000 Contribution margin 69,000 227,000 Fixed costs 19,000 177,000 Net income $50,000 $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. (a1) Your answer is correct. Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, eg. 1.15) Degree of Operating Leverage Carla Vista Yams Sandhill Yams (b) eTextbook and Media Your answer is incorrect. 1.38 4.54 Attempts: 1 of 3 used 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, eg 10.52. If % change is negative, enter amount with either a negative sign or parenthesis, eg 10.52 or (1052)) Sales decrease by 15% Carla Vista Yams % Change in Net Income Sandhill Yams Sales increase by 10% Carla Vista Yams Sandhill Yams
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Carla Vista Yams uses
labor-intensive approach, and Sandhill Yams uses a mechanized system. CVP income statements for the two companies are shown
below.
Carla Vista
Yams
Sandhill Yams
Sales
$391.000
$391,000
Variable costs
322,000
164,000
Contribution margin
69,000
227,000
Fixed costs
19,000
177,000
Net income
$50,000
$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.
(a1)
Your answer is correct.
Calculate each company's degree of operating leverage. (Round answers to 2 decimal places, eg. 1.15)
Degree of Operating Leverage
Carla Vista Yams
Sandhill Yams
(b)
eTextbook and Media
Your answer is incorrect.
1.38
4.54
Attempts: 1 of 3 used
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, eg
10.52. If % change is negative, enter amount with either a negative sign or parenthesis, eg 10.52 or (1052))
Sales decrease by 15%
Carla Vista Yams
% Change in Net Income
Sandhill Yams
Sales increase by 10%
Carla Vista Yams
Sandhill Yams
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