Farmers & Ranchers Bank was formed in 1913 to provide banking services to an area of the rural

Question # 2.     25%

Farmers & Ranchers Bank was formed in 1913 to provide banking services to an area of the rural southwestern United States. Their business consisted primarily of crop and cattle production loans to the local agricultural community. During the 1960’s oil and natural gas were discovered in the area which has provided an additional customer base of industry personnel. These personnel together with local supporting businesses created additional demand for personal banking services. By the 1980’s the Bank had established several dozen branches in smaller communities. At that time, the bank began installing an Automated Teller Machine (ATM) at these branches. The ATMs not only provided additional hours of service, they replaced a few of the tellers. While tellers do remain in most locations, the number of tellers has grown very little. The number of ATMS, on the other hand, has grown substantially to the present. Some larger branches have more than one ATM and some locations are only an ATM.
1. Using a unit level analysis, develop a graph with two lines representing the Bank's cost
structure. (Be sure to label the axes and lines. You must develop the appropriate data to
support the answers in your graph.)
     o In the 1980s
     o at the present time
2. With sales revenues as the independent variable, what is the likely impact of the changed
cost structure on the Bank's
     o Contribution Margin Percent
     o Break Even Point
3. Discuss how the change in the cost structure affected the Bank’s operating leverage and
how this affects profitability under rising or falling sales scenarios.
4. Provide 3 specific managerial decisions that can have an impact on the degree of
operating leverage of a firm.

Question #4. 25%

The budgeted costs for Connor Company for direct materials, direct production labor and direct distribution labor are $50, $10 and $15, respectively. The vice-president is deeply satisfied with the following performance report:

The real number of units produced was 8,000.

1. Prepare a performance evaluation report that uses a flexible and a static budget. Please assume that all the costs are variable. (The comprehensive variance analysis detail is not required for this question).
2. Is the vice-president’s satisfaction justified (answer after you complete part a.)?