The following summary data are provided for Spencer Mercantile Corporation and James Service, Inc. During the year for which these data are reported, Spencer sold 50,000 units and James sold 100,000 units.

Required:
1. Determine the break-even point for Spencer and James in both sales dollars and units.
2. Interpretive Question: Which company has a higher operating leverage? Why?
3. Interpretive Question: Based on your analysis of the cost structures of Spencer and
James, which company's cost structure is better? What factors are important to consider in answering such aquestion?

Transcribed Image Text:

Spencer Mercantile James Service, Inc. (000's omitted) Corporation Sales revenue. Less variable costs Contribution margin. Less fixed costs Income Ș1,500 $2,400 750 720 S 750 300 $1,680 700 $ 980 $ 450