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

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 Company B is higher.
3. Suppose that both companies experience a 50% increase in revenues. Compute the per¬
centage change in profits for each company. Explain why the percentage increase in Company B's profits is so much greater than that of Company A. /

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Sales Less: Variable costs Contribution margin Less: Fixed costs Operating income Company A Company B $500,000 $500,000 350,000 200,000 $150,000 $300,000 50,000 250,000 $100,000 $ 50,000