Operating Leverage These sales and cost data (000s) are for two companies in the transportation industry:
| Company A | Company B | ||
| Amount | Percent of sales | Amount | Percent of sales |
Sales | $100,000 | 100% | $100,000 | 100% |
Variable costs | 60,000 | 60 | 30,000 | 30 |
Contribution margin | $ 40,000 | 40% | $ 70,000 | 70% |
Fixed costs | 15,000 |
| 40,000 |
|
Operating profit | $ 25,000 |
| $ 30,000 |
|
Required
1. Calculate the operating leverage for each company. If sales increase, which company benefits more? How do you know?
2. Assume that sales rise 10 percent in the next year. Calculate the percentage increase in profit for each company. Are the results what you expected?
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