Question

April Hamilton has invested in two start-up companies. At the end of the first year, she asks you to evaluate their operating performance. The following operating data apply to the first year:


Required
a. Use the contribution margin approach to compute the operating leverage for each firm.
b. If the economy expands in the coming year, Beck and Zeck will both enjoy a 10 percent per year increase 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.
c. If the economy contracts in the following year, Beck and Zeck will both suffer a 10 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in both dollar amount and percentage.
d. Write a memo to April Hamilton with your evaluation andrecommendations.


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  • CreatedFebruary 07, 2014
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