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Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 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 (8,600 units x $31.00) Variable cost (8,600 units x a) Contribution margin Fixed cost Net income Company Name Benson Larson $ 20.00 $ 10.00 $ 266,600 $ 266,600 (172,000) $ 94,600 (86,000) (25,000) $ 180,600 (111,000) $ 69,600 $ 69,600 Required a. 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 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 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

Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 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 (8,600 units x $31.00) Variable cost (8,600 units x a) Contribution margin Fixed cost Net income Company Name Benson Larson $ 20.00 $ 10.00 $ 266,600 $ 266,600 (172,000) $ 94,600 (86,000) (25,000) $ 180,600 (111,000) $ 69,600 $ 69,600 Required a. 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 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 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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 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 (8,600 units x $31.00) Variable cost (8,600 units x a) Contribution margin Fixed cost Net income Company Name Larson $ 20.00 $ 266,600 (172,000) $ 94,600 (25,000) $ 69,600 Benson $ 10.00 $ 266,600 (86,000) $ 180,600 (111,000) $ 69,600 Required a. 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 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 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 C 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.) Note: Amounts to be deducted should be indicated with a minus sign. Enter "Variable cost per unit" and "Percentage change" amounts to 2 decimal places. Round all other answers to the nearest whole dollar amount. Company Name Larson Benson Variable cost per unit $ 20.00 $ 10.00 Sales revenue Variable cost Contribution margin 0 266,600 Fixed cost Net income $ 0 $ 266,600 Percentage change % Show less A
Transcribed Image Text:Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 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 (8,600 units x $31.00) Variable cost (8,600 units x a) Contribution margin Fixed cost Net income Company Name Larson $ 20.00 $ 266,600 (172,000) $ 94,600 (25,000) $ 69,600 Benson $ 10.00 $ 266,600 (86,000) $ 180,600 (111,000) $ 69,600 Required a. 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 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 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 C 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.) Note: Amounts to be deducted should be indicated with a minus sign. Enter "Variable cost per unit" and "Percentage change" amounts to 2 decimal places. Round all other answers to the nearest whole dollar amount. Company Name Larson Benson Variable cost per unit $ 20.00 $ 10.00 Sales revenue Variable cost Contribution margin 0 266,600 Fixed cost Net income $ 0 $ 266,600 Percentage change % Show less A
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