Income statements for two different companies in the same industry are as follows: ...
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Accounting
Income statements for two different companies in the same industry are as follows:
Company ACompany B
Sales $ 500,000 $ 500,000
Less: Variable Costs 400,000 200,000
Contribution Margin 100,000 300,000
Less: Fixed Costs 50,000 250,000
Operating Income $ 50,000$ 50,000
Calculate the degree of operating leverage for both companies.
2.Calculate the break-even point in $ for each company. Which company has the higher break-even point? Why?
3.Suppose both companies experience a 50% increase in sales. Calculate the percentage change in profits for each company. Explain why the percentage increase in Company Bs profits are so much larger than Company As.
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