Once upon a time, two brothers (Barry and Larry) dreamt about owning and operating companies in the same line of business. Barry believed in maintaining a very large, highly efficient manual labor force; Larry, on the other hand, favored automated-production processes. One business was located in Madison and the other was located in Austin. Recent data follow.
Required:
A. Which of the two businesses, Madison or Austin, 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) Madison and (2) Austin. Briefly explain your logic.
C. Compute the operating leverage factor for Madison and Austin.
D. Suppose that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?

Question

Once upon a time, two brothers (Barry and Larry) dreamt about owning and operating companies in the same line of business. Barry believed in maintaining a very large, highly efficient manual labor force; Larry, on the other hand, favored automated-production processes. One business was located in Madison and the other was located in Austin. Recent data follow.  
Required: 
A. Which of the two businesses, Madison or Austin, 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) Madison and (2) Austin. Briefly explain your logic.
C. Compute the operating leverage factor for Madison and Austin.
D. Suppose that both Madison and Austin 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 Once upon a time, two brothers (Barry and Larry) dreamt about owning and operating companies in the same line of business. Barry believed in maintaining a very large, highly efficient manual labor force; Larry, on the other hand, favored automated-production processes. One business was located in Madison and the other was located in Austin. Recent data follow.  
Required: 
A. Which of the two businesses, Madison or Austin, 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) Madison and (2) Austin. Briefly explain your logic.
C. Compute the operating leverage factor for Madison and Austin.
D. Suppose that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?

Once Upon a Time, Two Brothers (Barry and Larry) Dreamt