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Question 1 I heard of a company, call them Y Co., that changed from purchasing...

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Accounting

Question 1

I heard of a company, call them Y Co., that changed from purchasing production equipment to allowing the vendor to install the equipment and Y Co. paid a per-unit fee to the vendor for each hour the equipment was used. Y Co., never quite knows how much sales demand, and therefore how much production volume they will face each period.

Required:

What is the effect on the intercept and slope of the total cost line of making this change?

What is the effect on the operating leverage?

How does the change affect the riskiness of Y Co.?

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