HighTech Incorporated and OldTime Company compete within the same industry and had the following operating results in $2022$:

HighTech Incorporated OldTime Company

Sales $ $2,300,000$ $ $2,300,000$

Variable expenses $460,0001,380,000$

Contribution margin $ $1,840,000$ $ $920,000$

Fixed expenses $1,570,000650,000$

Operating income $ $270,000$ $ $270,000$

 

 

Required:

Calculate the breakeven point for each firm in terms of revenue.

What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in $2022?$

Calculate the amount of operating income $($or loss$)$ that you would expect each firm to report in $2023$ if sales were to

Increase by $20\%.$

Decrease by $20\%.$

Using the amounts computed in requirement c$,$ calculate the increase or decrease in the amount of operating income expected in $2023$ from the amount reported in $2022.$

Explain why an equal percentage increase $($or decrease$)$ in sales for each firm would have such differing effects on operating income.

Calculate the ratio of contribution margin to operating income for each firm in $2022.($Hint: Divide contribution margin by operating income.$)$

Multiply the expected increase in sales of $20\%$ for $2023$ by the ratio of contribution margin to operating income for $2022$ computed in requirement f for each firm. $($Hint: Multiply your answer in requirement $($f$)$ by $0\mathrm{.}2.)$

Multiply your answer in requirement g by the operating income of $$270,000$ reported in $2022$ for each firm.

Compare your answer in requirement h with your answer in requirement d$.$ What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements f$,$ g$,$ and h$?$