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1. Alabama Corporation and California Corporation have the same sales and profits as follows:
Using an operating leverage analysis, determine how much profits would increase for each
company if each experienced a 10% increase in sales.
2. Virginia, LLC, sells its product for $20 and incurs variable costs in producing that product of
$8 per unit and total fixed costs of $10,000. Using the contribution margin ratio approach,
calculate the number of units of the product that Virginia, LLC must sell to generate a profit of
3. Georgia, Inc. and Florida Company both sell the same kinds of products.
Sales and expenses for each company are:
Which of these companies have the highest operating leverage? Which of these
companies has more financial risks?
4. Nevada Appliance Company uses a job-order costing system and allocates overhead based
on the cost of the installer’s time. Annual installer’s time was estimated at the beginning of the
year to be $400,000 for the year, and company overhead was estimated to be $200,000 for the
If an installation job requires parts costing $100 and an installer’s time costs $200, what would
be the total cost of the job in this job-costing system? In this case, why would using a
predetermined overhead rate be better than assigning actual overhead costs to each installation