Homework Answers
| Computation Degree of operating Leverage | |||
| Fire Company | Ice Cmpany | ||
| Contribution | $360,000.00 | $126,000.00 | |
| (900000*40%) | (420000*30%) | ||
| Less : Fixed Cost | $200,000.00 | $90,000.00 | |
| EBIT | $160,000.00 | $36,000.00 | |
| Operating leverage ( Contribution/ EBIT) | 2.25 | 3.5 | |
| b) Increase in income for 10% increase in sales: | |||
| Fire Company | Ice Cmpany | ||
| Sales increase | 10% | 10% | |
| % increase in profit (DOL*% sales increase) | 22.50% | 35.00% | |
| $ increase in profit (Current EBIT*% increase in profit) | $36,000.00 | $12,600.00 | |
| Fire Company will be benefited more with increase in sales % by 10% | |||
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