3.5 Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are

$3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company B’s fixed costs are $500,000. Compute the degree of operating leverage for both companies.

Which company will benefit most from a 25% increase in sales? Explain why.