Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's operations of the two firms he is considering and give him some business advice. Variable cost per unit (a) Sales revenue (8,100 units × $28.00) Variable cost (8,100 units x a) Contribution margin. Fixed cost Net income Company Name Larson $ 19.00 $ 226,800 (153,980) $ 72,900 (24,600) $ 48,300 Benson $9.50 $ 226,800 (76,950) $ 149,850 (101,550) $ 48,300 Required a. Use the contribution margin approach to compute the operating leverage for each firm. b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 percent per year Increase in sales, assuming that the selling price remains unchanged. Compute the change in net Income for each firm in dollar amount and in percentage. (Note: Since the number of units increases, both revenue and variable cost will increase.) c. If the economy contracts in coming years, Larson and Benson will both suffer a 11 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note: Since the number of units decreases, both total revenue and total variable cost will decrease.) Answer is not complete. Complete this question by entering your answers in the tabs below.
Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1,000,000 in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's operations of the two firms he is considering and give him some business advice. Variable cost per unit (a) Sales revenue (8,100 units × $28.00) Variable cost (8,100 units x a) Contribution margin. Fixed cost Net income Company Name Larson $ 19.00 $ 226,800 (153,980) $ 72,900 (24,600) $ 48,300 Benson $9.50 $ 226,800 (76,950) $ 149,850 (101,550) $ 48,300 Required a. Use the contribution margin approach to compute the operating leverage for each firm. b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 percent per year Increase in sales, assuming that the selling price remains unchanged. Compute the change in net Income for each firm in dollar amount and in percentage. (Note: Since the number of units increases, both revenue and variable cost will increase.) c. If the economy contracts in coming years, Larson and Benson will both suffer a 11 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note: Since the number of units decreases, both total revenue and total variable cost will decrease.) Answer is not complete. Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Arnold Vimka is a venture capitalist facing two alternative Investment opportunities. He intends to invest $1,000,000 in a start-up firm.
He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's
operations of the two firms he is considering and give him some business advice.
Variable cost per unit (a)
Sales revenue (8,100 units × $28.00)
Variable cost (8,100 units x a)
Contribution margin.
Fixed cost
Net income
Required A
Variable cost per unit
Sales revenue
Variable cost
Contribution margin
Required
a. Use the contribution margin approach to compute the operating leverage for each firm.
b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 percent per year Increase in sales, assuming that
the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note:
Since the number of units Increases, both revenue and variable cost will increase.)
Fixed cost
Net income
Percentage change
Company Name
c. If the economy contracts in coming years, Larson and Benson will both suffer a 11 percent decrease in sales volume, assuming that
the selling price remains unchanged. Compute the change in net Income for each firm in dollar amount and in percentage. (Note:
Since the number of units decreases, both total revenue and total variable cost will decrease.)
$
Larson
$ 19.00
$ 226,800
(153,900)
$ 72,900
(24,600)
$ 48,300
Complete this question by entering your answers in the tabs below.
Larson
19.00✔
0
24,600
S (24,600)
Required B Required C
If the economy expands in coming years, Larson and Benson will both enjoy a 11 percent per year increase in sales, assuming
that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in
percentage. (Note: Since the number of units increases, both revenue and variable cost will increase.)
Note: Amounts to be deducted should be indicated with a minus sign. Enter "Variable cost per unit" and "Percentage change"
amounts to 2 decimal places. Round all other answers to the nearest whole dollar amount.
96
Company Name
Benson
$ 226,800
(76,950)
$ 149,850
(101,550)
$48,300
$
$ 9.50
X Answer is not complete.
Benson
0
9.50✔
101,550
$ (101,550)
96
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Step 1: what is operating leverage
VIEWStep 2: calculating Operating Leverage of Companies
VIEWStep 3: Change in net income for each firm in dollar amount and in percentage if sales are increased by 11%
VIEWStep 4: Change in net income for each firm in dollar amount and in percentage if sales are decreased by 11%.
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