Following is financial information relative to two companies in the same industry.

Alpha Omega Sales $10,000,000 $10,000,000 Variable Cost 5,000,000 2,000,000 Contribution Margin 5,000,000 8,000,000 Fixed Costs 3,000,000 6,000,000 Operating Income $2,000,000 $2,000,000

Required: 1. Calculate the operating leverage for each firm. 2. If sales increased 10% for each firm, and the variable cost per unit did not change and the fixed costs did notchange, what would be the change in operating income? 3. If sales decreased 20% for each firm, and the variable cost per unit did not change and the fixed costs did notchange, what would be the change in operating income? 4. Discuss the nuances of operating leverage and its relation to risk.