A Company Is Looking into Two Alternative Methods of Producing

Essay

A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected?Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives.
$$\begin{array} { l | l | l } & \text { Alternative\#1 } & \text { Alternative \#2 } \\\hline \text { Variable costs per unit } & \$ 8 & \$ 12 \\\hline \text { Fixed costs } & \$ 240,000 & \$ 140,000 \\\hline \text { Selling price per unit } & \$ 20 & \$ 20\end{array}$$