Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000.

Question:

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.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Question Posted: