Operating Leverage of Ludlam Company and Kassandra Company
Not what you're looking for?
Ludlam Company and Kassandra Company both make school desks. They have the same production capacity, but Ludlam is more automated than Kassandra. At an output of 2,500 desks per year, the two companies have the following costs:
Ludlam Kassandra
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$137,500 $ 37,500
Variable costs at $20 per desk . . . . . . . . . . . . . . . . . . . . . . .50,000
Variable costs at $60 per desk . . . . . . . . . . . . . . . . . . . . . 150,000
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$187,500 $187,500
Unit cost (2,500 desks) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75 $ 75
Assuming that both companies sell desks for $100 each and that there are no other costs or expenses for the two firms, complete the following:
1. Which company will lose the least money if production and sales fall to 1,000 desks per year?
2. What would be each company's profit or loss at production and sales levels of 1,000 desks per year?
3. What would be each company's profit or loss at production and sales levels of 4,000 desks per year?
Purchase this Solution
Solution Summary
This solution is comprised of a detailed explanation to answer the effects of operating leverage of Ludlam Company and Kassandra Company.
Solution Preview
1. Which company will lose the least money if production and sales fall to 1,000 desks per year?
Ludlam Kassandra
Total Revenue (1,000 desks) . . . . . . . . . . . . . . . . . . . . . .$100,000 $100,000
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$137,500 $ 37,500
Variable costs at $20 per desk (1,000 desks) . . . . . . . . . . . 20,000
Variable costs at $60 per desk (1,000 desks). . . . . . ...
Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media