Item 5

Company A is a manufacturer with sales of $3,400,000 and a 60% contribution margin. Its fixed costs equal $1,600,000. Company B is a consulting firm with service revenues of $3,500,000 and a 25% contribution margin. Its fixed costs equal $410,000. Compute the degree of operating leverage (DOL) for each company. Which company benefits more from a 20% increase in sales.

Compute the degree of operating leverage (DOL) for each company.

Which company benefits more from a 20% increase in sales.