The profit statements for two different companies in the same industry are as follows: Required: (a) Compute

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

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Required:

(a) Compute the degree of operating leverage for each company.

(b) Compute the break-even point for each company.
Explain why the break-even point for Company B is higher.

(c) Assume that both companies experience a 50 per cent increase in sales revenues. Explain why the percentage increase in Company B’s profits is significantly larger than that of Company A.

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Management Accounting For Business

ISBN: 9781138550650

8th Edition

Authors: Colin Drury, Mike Tayles

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Question Posted: Jun 04, 2024 01:01 AM

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The profit statements for two different companies in the same industry are as follows: Required: (a) Compute

Question:

Company A Company B (000) (000) Sales 10,000 10,000 Less: Variable costs 8,000 4,000 Contribution margin 2,000 6,000 Less: Fixed costs 1,000 5,000 Profit 1,000 1,000

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Management Accounting For Business

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