Operating Leverage

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

		Trimax, Inc.		Quintex, Inc.
Sales		$500,000		$562,500
Less: Variable costs		250,000		112,500
Contribution margin		$250,000		$450,000
Less: Fixed costs		200,000		400,000
Operating income		$50,000		$50,000

Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company. Trimax, Inc. Quintex, Inc. Why is the break-even point for Quintex, Inc., higher? 3. Suppose that both companies experience a 40 percent increase in revenues. Compute the percentage change in profits for each company. Trimax % Quintex %