Solution-Compute the degree of operating leverage for each

Compute the degree of operating leverage for each company

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Reference no: EM132859515

Question - Income statements 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 -

(i) Compute the degree of operating leverage for each company.

(ii) Compute the break-even point for each company. Explain why the break-even point for Beta is higher.

(iii) Suppose that both companies experience a 50% increase in revenues, compute the percentage change in profits for each company. Explain why the percentage increase in Beta's profits is so much greater than that of Alpha.

Reference no: EM132859515

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Compute the degree of operating leverage for each company

Reference no: EM132859515

Reference no: EM132859515

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