Degree of Operating Leverage (DOL) TastyKreme and Krispy Kake are are both producers ofbaked goods, but each has followed a different production strategy. The differences in their strategiesresulted in differences in their cost structure, as shown in the following table:TastyKreme Krispy KakeEstimated sales in units 20,000 15,000Unit price 6.00 8.00Variable cost per unit 3.00 3.00Total fixed costs $30,000 $45,000[LO 9-5][LO 9-5][LO 9-5]Final PDF to printerblo17029_ch09_314-354.indd 344 02/19/18 09:08 AM344 Part Two Planning and Decision MakingRequired1. Compute the operating income and degree of operating leverage for each company.2. Assuming sales volume for each company will decline by 10% and that their cost structures will notchange, compute the percentage and dollar amount of the change in operating income for each company.
Degree of Operating Leverage (DOL) TastyKreme and Krispy Kake are are both producers of
baked goods, but each has followed a different production strategy. The differences in their strategies
resulted in differences in their cost structure, as shown in the following table:
TastyKreme Krispy Kake
Estimated sales in units 20,000 15,000
Unit price 6.00 8.00
Variable cost per unit 3.00 3.00
Total fixed costs $30,000 $45,000
[LO 9-5]
[LO 9-5]
[LO 9-5]
Final PDF to printer
blo17029_ch09_314-354.indd 344 02/19/18 09:08 AM
344 Part Two Planning and Decision Making
Required
1. Compute the operating income and degree of operating leverage for each company.
2. Assuming sales volume for each company will decline by 10% and that their cost structures will not
change, compute the percentage and dollar amount of the change in operating income for each company.
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