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

Company A Company B

Sales $ 500,000 $ 500,000

Less: Variable Costs 400,000 200,000

Contribution Margin 100,000 300,000

Less: Fixed Costs 50,000 250,000

Operating Income $ 50,000 $ 50,000

1. Calculate the degree of operating leverage for both companies.

2.Calculate the break-even point in $ for each company. Which company has the higher break-even point? Why?

3.Suppose both companies experience a 50% increase in sales. Calculate the percentage change in profits for each company. Explain why the percentage increase in Company Bs profits are so much larger than Company As.