THIS is your "Bob- Homework" ... Prob 20-2B ... AND ... Prob 20-8B This problem is NOT in your textbook. Times Required: below this problem B (next page) are the "working papers" for you to complete and then submit to the instructor ... by the due date. % Change in Sales Degree of Operating Leverage % Change in Net Income Optional: Below the Prob B "working papers"(scroll 3 pages) are answers to similar, Prob A. If needed, refer to the Prob A to help you complete your problem B assignment. 15% Decrease: Traditional Yams Auto-Yams (15%) (15%) E20-16 An investment banker is analyzing two companies that specialize in the produc- tion and sale of candied yams. Traditional Yams uses a labor-intensive approach, and Auto- Yams uses a mechanized system. CVP income statements for the two companies are shown below. 10% Increase: Traditional Yams Auto-Yams 10% 10% X X Sales Variable costs Contribution margin Fixed costs Net income Traditional Yams $400,000 320,000 80,000 30.000 $ 50,000 Auto-Yams $400,000 160,000 240,000 190,000 $ 50,000 Which company should the investment banker acquire ... and WHY? (one word orone sentence "answers" tell me you blew this off ... THINK, ANALYZE, RESPOND like a manager or investor.) 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 15% and if sales increase by 10%. Do not prepare income statements. (c) Which company should the investment banker acquire? Discuss. DIV by Degree of Contribution Margin Net Income Operating Leverage Traditional Yams Auto-Yams Which company's cost structure makes it more sensitive to changes in sales volumes