Income Statements for Two Different Wineries Are as Follows A Calculate the Degree of Operating Leverage for Each Firm

question 78

Essay

Income statements for two different wineries are as follows:
$\begin{array}{lrr}&\text { White Wine } & \text { Red Wine } \\&\text { Company } & \text { Company }\\\text { Sales } & \$ 400,000 & \$ 400,000 \\\text { Less: Variable costs } & 300,000 & 200,000 \\\hline\text { Contribution margin } & \$ 100,000 & \$ 200,000 \\\text { Less: Fixed costs } & 50,000 & 150,000 \\\text { Operating income } & \$ 50,000 & \$ 50,000\end{array}$ A. Calculate the degree of operating leverage for each firm.
B. Calculate the margin of safety in dollars for each firm.
C. Determine the operating income for each firm if sales increase by $20 \%$ .

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Definitions:

Competitive Advantage

Refers to the unique edge a business has over its competitors, allowing it to generate greater sales or margins and/or retain more customers.

Strategic Management Process

A comprehensive approach to planning, executing, monitoring, and adapting strategies that guide an organization in maintaining competitive advantage.

Strategy

A comprehensive plan guiding resource allocation to achieve long-term organization goals.

Lack of Participation Error

A situation in decision-making processes where not all relevant parties are included, which can lead to suboptimal outcomes and reduced acceptance of decisions.