Reference no: EM132649945

TastyKreme and Krispy Kake are 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             20,000                15,000
Unit price                                     6                      8
Variable cost per unit                      3                     3
Total fixed costs                      $30,000               $45,000

Question 1. Compute the operating income and degree of operating leverage for each company.

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.