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Contribution margin income statements for two competing companies are provided below: Le Company Chi Company Revenue Less variable costs $ 900,000 300,000 $ 900,000
Contribution margin income statements for two competing companies are provided below: Le Company Chi Company Revenue Less variable costs $ 900,000 300,000 $ 900,000 500,000 Contribution margin $ 600,000 $ 400,000 Less fixed costs 400,000 200,000 Net income $ 200,000 $ 200,000 Compute the magnitude of operating leverage for Le Company. If the sales revenue of Le increases by 20% (as the firm sells 20% more), what will be the effect on profit (increase or decrease, by how many percent)? Show your work. If the sales revenue of Le decreases by 20% (as the firm sells 20% less), what will be the effect on profit (increase or decrease, by how many percent)? Show your work.
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