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Which company has the lower breakeven

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Question: There are two companies, Sparky and Bear that are very similar. Their sales and operating income are the same as well as their operating income ratio, 10%. In addition, Sparky has a variable cost ratio of 30% and Bear has a variable cost ratio of 60%. Last, Sparky and Bear have fixed costs of $60,000 and $30,000, respectively.

Answer the following:

a) Which company has the lower breakeven? Higher breakeven?

b) Which company's operating income is more sensitive to sales volatility?

c) If sales increase by 25% what is the percentage change in operating income for both Sparky and Bear?

Reference no: EM132719327

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