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1. Ringsmith Company is considering two different processes to make its productprocess 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 involves 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 39,000 units follow:

   		Process 1		Process 2
   Sales		$10,296,000		$10,296,000
   Variable expenses		3,978,000		5,772,000
   Contribution margin		$6,318,000		$4,524,000
   Less total fixed expenses		3,505,265		1,386,890
   Operating income		$2,812,735		$3,137,110
   Unit selling price		$264		$264
   Unit variable cost		$102		$148
   Unit contribution margin		$162		$116

   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		%
   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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