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Degree of Operating Leverage, Percent Change in Profit Ringsmith Company is considering two different processes to make its product-process 1 and process 2. Process 1 requires Ringsmith to manufacture subcomponents of the product in-house. As a result, materials are less expensive, but fixed overhead is higher. Process 2 invalves purchasing all subcomponents from outside suppliers. The direct materials costs are higher, but fixed factory overhead is considerably lower. Relevant data for a sales level of 36,000 units follow: Process 1 Process 2 Sales 59,504,000 59,504,000 Variable expenses 3,744,000 4,896,000 Contribution margin 55,760,000 54,600,000 Less total fixed expenses 3,784,310 1,418,510 Operating Income $1,975,690 S3,189,490 Unit selling price 5264 5264 Unit variable cost 5104 5136 Unit contribution margin 5160 5128 Required: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subsequent calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1 996 Process 2 What will be the increase in operating income for each systern? Round your answers to the nearest dollar. 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subsequent calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1 D Process 2 What will be the increase in operating income for each system? Round your answers to the nearest dollar, Process 1 Process 2 What will be the total operating income for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2 3. What if unit sales are 10 percent lower than budgeted? By what percentage will operating income decrease for each process? Process 1 Process 2 What will be the total operating income for each process? Round your answers to the nearest dollar. Process 1 Process 2

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