Two sisters (Amy and Amanda) aspired to owning and operating companies in the same line of business. Amy believed in maintaining a very large, highly efficient manual labour force; Amanda, on the other hand, favored automated-production processes. One business was located in Brockville, Ontario and the other was located in Minto, New Brunswick. Recent data follow. $\begin{array} { lcc }
& \text { Brockville } & { \text { Minto } } \
\text { Sales } & \$ 3,000,000 & \$ 3,000,000 \
\text { Contribution margin } & 2,800,000 & 1,500,000 \
\text { Net income } & 50,000 & 50,000
\end{array}$ Required:
A. Which of the two businesses, Brockville or Minto, has the highest level of (1) variable cost and (2) highest level of fixed cost? Explain your answer.
B. Determine the probable owner of the firm located in (1) Brockville and (2) Minto. Briefly explain your answer.
C. Compute the operating leverage factor for Brockville and Minto.
D. Suppose that both Brockville and Minto had the opportunity to increase sales by 20%. Which of the two locations would experience a larger percentage change in net income? Why?

Question

Two sisters (Amy and Amanda) aspired to owning and operating companies in the same line of business. Amy believed in maintaining a very large, highly efficient manual labour force; Amanda, on the other hand, favored automated-production processes. One business was located in Brockville, Ontario and the other was located in Minto, New Brunswick. Recent data follow. $\begin{array} { lcc } 
& \text { Brockville } &  { \text { Minto } } \
\text { Sales } & \$ 3,000,000 & \$ 3,000,000 \
\text { Contribution margin } & 2,800,000 & 1,500,000 \
\text { Net income } & 50,000 & 50,000
\end{array}$ Required:
A. Which of the two businesses, Brockville or Minto, has the highest level of (1) variable cost and (2) highest level of fixed cost? Explain your answer.
B. Determine the probable owner of the firm located in (1) Brockville and (2) Minto. Briefly explain your answer.
C. Compute the operating leverage factor for Brockville and Minto.
D. Suppose that both Brockville and Minto had the opportunity to increase sales by 20%. Which of the two locations would experience a larger percentage change in net income? Why?

Quizplus · Accepted Answer

The Answer of Two sisters (Amy and Amanda) aspired to owning and operating companies in the same line of business. Amy believed in maintaining a very large, highly efficient manual labour force; Amanda, on the other hand, favored automated-production processes. One business was located in Brockville, Ontario and the other was located in Minto, New Brunswick. Recent data follow. $\begin{array} { lcc } 
& \text { Brockville } &  { \text { Minto } } \
\text { Sales } & \$ 3,000,000 & \$ 3,000,000 \
\text { Contribution margin } & 2,800,000 & 1,500,000 \
\text { Net income } & 50,000 & 50,000
\end{array}$ Required:
A. Which of the two businesses, Brockville or Minto, has the highest level of (1) variable cost and (2) highest level of fixed cost? Explain your answer.
B. Determine the probable owner of the firm located in (1) Brockville and (2) Minto. Briefly explain your answer.
C. Compute the operating leverage factor for Brockville and Minto.
D. Suppose that both Brockville and Minto had the opportunity to increase sales by 20%. Which of the two locations would experience a larger percentage change in net income? Why?

Two Sisters (Amy and Amanda) Aspired to Owning and Operating