The Following Information Is Available for the Blue and Red

question 58

Essay

The following information is available for the Blue and Red Companies for 2009
$\begin{array}{lcc}&\underline{\text { Blue} }& \underline{\text { Red }}\\ \text { Sales (200 000 units) } &\$1800000&\$1800000\\ \text { Variable costs } &\underline{800000}&\underline{1200000}\\ \text {Contribution margin } &1000000&600000\\ \text { Fixed costs } &\underline{500000\$}&\underline{100000\$}\\ \text { Net income } &\underline{500000}&\underline{500000}\\\end{array}$

Required:
A. Compute the pperating leverage for each company and explan what qperating leverage measures.

B. If both companies exiderience a $20 \%$ increase in sales volume, will they continue to have the same net income? Why ar why not? Explan your answer with respect to each company's operating leverage.

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Definitions:

Avoid Redundancy

The practice of eliminating unnecessary repetition or overlap in speech or writing to achieve clarity and efficiency.

Telegraphic Language

A concise and efficient form of communication using short and simple phrases, often utilized in telegraphic messages or in contemporary texting and messaging.

Subordination

The process of ranking various ideas or elements in a written document or speech to show their relative importance.

Correspondence

The exchange of messages or documents between individuals or organizations, often through letters, emails, or other forms of communication.