Operating Leverage Income statements for two different companies in the same industry are as follows: Elgin, Inc. Hobart, Inc. Sales $1,200,000 $1,200,000 Less: Variable costs 960,000 720,000 Contribution margin $240,000 $480,000 Less: Fixed costs 180,000 420,000 Operating income $60,000 $60,000 Required: 1. Compute the degree of operating leverage for each company. Elgin Hobart 4 2. Compute the break-even point in dollars for each company. Elgin, Inc. Hobart, Inc. Why is the break-even point for Hobart, Inc., higher? Because it must cover more in fixed expenses. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Elgin Hobart % %