Sprint 8:01 PM c@88% e verage and alternative cost structure An investment banker is analyzing two companies that specialize in the production and sale of candied apples. Old-Fashion Apples uses a labor-intensive approach, and Mech-Apple uses a mechanized system. CVP income statements for the two companies are shown below. Old-Fashion Apples Mech- Apple Sales $400,000 $400,000 Variable costs 320,000 160,000 80,000 240,000 Contribution margin Fixed costs 180,000 20,000 $ 60,000 Net income $ 60,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability. Instructions (a)Calculate each company's degree of operating leverage. Determine which company's cost structure makes it more sensitive to changes in sales volume. (b)Determine the effect on each company's net income if sales decrease by 10% and if sales increase by 5%. Do not prepare income statements. (c)Which company should the investment banker acquire? Discuss. (These comments are IMPORTANT!) Araline Add Reply