Determining Contribution Margin from Degree of Operating Leverage
Sonny Company and Cher Corp have degrees of operating leverage of 2.5 and 4.7, respectively. Both companies have net income of $80,000.
Required:
1.Without performing any calculations, discuss what the degrees of operating leverage tell us about the two companies.
2.Determine each company’s total contribution margin.
3.Compare the companies’ cost structures.
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