Develop the output indices of the Nouveau Cattle Slaughtering Plant (base year 2007).

The cost advantage of different locations is $20,000. Phoenix appears to have a cost benefit over Atlanta and should be selected for the new facility instead of other options.

take advantage of the strengths of others

Solution

1.Hotel’s cost structure          Indications in percentage(%)

Revenue                                     $ 2,000,000                          (100)

Less: Variable expenses            $ 1,300,000                            65

                                                    --------------------

Contribution margin                       $700,000                            

Less: Fixed expenses                   $560,000                            28

                                                    ---------------------

Net income                                       $140,000                            7

2.Revenue declines by 30 percent

Revenue                                     $ 1,400,000                    

Less: Variable expenses               $910,000                                                                                    

                                                   ---------------------

Contribution margin                       $490,000                  

Less: Fixed expenses                   $392,000                          

                                                    ---------------------

Net income                                       $98,000          

3.Operating leverage factor when revenue is $2,000,000    

       Operating leverage =    Contribution/ Net income

                                             

4.Operating leverage factor when increase in revenue by 25 percent  

increase in revenue by 25 percent=

increase in contribution by 25 percent=

increase in net income by 25 percent  =                                                  

       Operating leverage =    Contribution/ Net income