Company A is a manufacturer with current sales of $1,500,000 and a 60% contribution margin . Its

Question:

Company A is a manufacturer with current sales of $1,500,000 and a 60% . Its fixed costs equal $650,000. Company B is a consulting firm with current service revenues of $1,500,000 and a 25% . Its fixed costs equal $125,000. Compute the degree of operating leverage (DOL) for each company. Identify which company benefits more from a 20% increase in sales and explain why.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...