Assume that two companies, Brake, Inc. and Carbo, Inc., have the following operating results:

Brake, Inc.

Carbo, Inc.

Sales

$300,000

$300,000

Variable Costs

60,000

180,000

Fixed Costs

210,000

90,000

Operating Income

$30,000

$30,000

Tasks:

• Calculate the contribution margin and breakeven point for both companies.
• Compare the two companies. What conclusions could you make regarding the use of operating leverage employed by the two firms?
• What recommendations would you make to the two companies and why?