3.5 Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are

$600,000. Company B is a service firm with current service revenue of $2,800,000 and a 15% contribution margin. Company B’s fixed costs are $375,000. Compute the degree of operating leverage for both companies.

Which company will benefit most from a 15% increase in sales? Explain why.