Two brothers (Baylor and Lamar) dreamt about owning and operating companies in the same line of business. Baylor believed in maintaining a very large, highly efficient manual labor force; Lamar, on the other hand, favored automated-production processes. One business was located in Omaha and the other was located in Tulsa. Recent data follow.

A. Which of the two businesses, Omaha or Tulsa, has the higher level of (1) variable cost and (2) higher level of fixed cost? Explain how you determined your answer.
B. Determine the probable owner of the firm located in (1) Omaha and (2) Tulsa. Briefly explain your logic.
C. Compute the operating leverage factor for Omaha and Tulsa.
D. Suppose that both Omaha and Tulsa had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?

Question

Two brothers (Baylor and Lamar) dreamt about owning and operating companies in the same line of business. Baylor believed in maintaining a very large, highly efficient manual labor force; Lamar, on the other hand, favored automated-production processes. One business was located in Omaha and the other was located in Tulsa. Recent data follow.
  
A. Which of the two businesses, Omaha or Tulsa, has the higher level of (1) variable cost and (2) higher level of fixed cost? Explain how you determined your answer.
B. Determine the probable owner of the firm located in (1) Omaha and (2) Tulsa. Briefly explain your logic.
C. Compute the operating leverage factor for Omaha and Tulsa.
D. Suppose that both Omaha and Tulsa had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?

Quizplus · Accepted Answer

The Answer of Two brothers (Baylor and Lamar) dreamt about owning and operating companies in the same line of business. Baylor believed in maintaining a very large, highly efficient manual labor force; Lamar, on the other hand, favored automated-production processes. One business was located in Omaha and the other was located in Tulsa. Recent data follow.
  
A. Which of the two businesses, Omaha or Tulsa, has the higher level of (1) variable cost and (2) higher level of fixed cost? Explain how you determined your answer.
B. Determine the probable owner of the firm located in (1) Omaha and (2) Tulsa. Briefly explain your logic.
C. Compute the operating leverage factor for Omaha and Tulsa.
D. Suppose that both Omaha and Tulsa had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?

Two Brothers (Baylor and Lamar) Dreamt About Owning and Operating