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Select Solutions to Chapter 7 7-14 East Company, which is highly automated, will have a cost structure dominated by fixed costs. West Companys cost structure will include a larger proportion of variable costs than East Companys cost structure. A firms operating leverage factor, at a particular sales volume, is defined as its total contribution margin divided by its net income. Since East Company has proportionately higher fixed costs, it will have a proportionately higher total contribution margin. Therefore, East Companys operating leverage factor will be higher. 7-15 When sales volume increases, Company X will have a higher percentage increase in profit than Company Y. Company Xs higher proportion of fixed costs gives the firm a higher operating leverage factor. The companys percentage increase in profit can be found by multiplying the percentage increase in sales volume by the firms operating leverage factor. 7-16 The sales mix of a multiproduct organization is the relative proportion of sales of its products. The weighted-average unit contribution margin is the average of the unit contribution margins for a firms several products, with each products contribution margin weighted by the relative proportion of that products sales. 7-17 The car rental agencys sales mix is the relative proportion of its rental business associated with each of the three types of automobiles: subcompact, compact, and full-size. In a multi-product CVP analysis, the sales mix is assumed to be constant over the relevant range of activity. 7-18 Cost-volume-profit analysis shows the effect on profit of changes in expenses, sales prices, and sales mix. A change in the hotels room rate (price) will change the hotels unit contribution margin. This contribution-margin change will alter the relationship between volume and profit. 7-21 The statement makes three assertions, but only two of them are true. Thus the statement is false. A company with an advanced manufacturing environment typicall