Lawnmowers30%$50$15.00Weed-trimmers50%$2211.00Chainsaws20%$459.00$35.00Total break-even = $5,974,850 ÷ $35.00 = 170,710 units
Sales UnitsSales MixPercentageTotalBreakevenSales UnitsSales Units Needed Per Product
units170,710 unitsAn investment banker is analyzing two companies that specialize in the production and sale of candied apples. Old-Fashion Apples uses a labor-intensive approach, and Mech-Apple uses a mechanized system. CVP incomestatements for the two companies are shown below.
Old Fashion ApplesMech-Apple
Sales$400,000 $400,000Variable costs320,000 160,000 Contribution margin80,000 240,000Fixed costs20,000 180,000 Net income$60,000 $60,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about theimpact that each company's cost structure might have on its profitability.Calculate each company's degree of operating leverage.
(Round your answers to 2 decimal places, e.g. 1.55.)
Old-Fashion Apples1.33Mech-Apple4Determine which company's cost structure makes it more sensitive to changes in sales volume.Mech-Apple