Reference no: EM132541705

TastyKreme and Krispy Kake are both producers of baked goods, but each has followed a different production strategy. The differences in their strategies resulted in differences in their cost structure, as shown in the following table:

                                                       Tasty Kreme                     Krispy Kake

Estimated sales in units                    27,000                      28,000

Unit price                                             9                           9

Variable cost per unit                             6                            4

Total fixed costs                                $40,500                  $84,000

Required:

Question 1. Compute the operating income and degree of operating leverage (DOL) for each company. (Round "Degree of operating leverage" to 1 decimal place.)

Question 2. Assuming sales volume for each company will decline by 10% and that their cost structures will not change, compute the percentage and dollar amount of the change in operating income for each company. (Negative values should be indicated by a minus sign.)