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Income statement for two different companies in the same industry are as follows: Alpha...

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Accounting

Income statement for two different companies in the same industry are as follows:

Alpha Beta

$ $

Sales 500,000 500,000

Variable costs 350,000 200,000

Contribution margin 150,000 300,000

Fixed Costs 100,000 250,000

Operating income 50,000 50,000

Required:

  1. Compute the degree of operating leverage for each company
  2. Compute the break-even point for each company, explain why the break-even point for Beta is higher.
  3. Suppose both companies experience a 50% increase in revenues, compute the percentage change in profits for each company. Explain why the percentage increase in Betas profit is so much greater than that of Alpha.

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