Income statements for two different companies in the same industry are as follows:

AlphaBeta

$$

Sales500,000500,000

Variable costs350,000200,000

Contribution margin150,000300,000

Fixed costs100,000250,000

Operating income50,00050,000

Required:

(i)Compute the degree of operating leverage foreach company

(ii)Compute the break-even point for each company. Explain why the break-even point for Beta is higher.

(iii)Suppose that both companies experience a 50% increase in revenues, compute the percentage change in profits for each company. Explain why the percentage increase in Beta's profits is so much greater than that of Alpha.