Operating Leverage

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

		Trimax, Inc.		Quintex, Inc.
Sales		$240,000		$375,000
Less: Variable costs		120,000		75,000
Contribution margin		$120,000		$300,000
Less: Fixed costs		90,000		270,000
Operating income		$30,000		$30,000

Required:

1. Compute the degree of operating leverage for each company.

Trimax	fill in the blank 1
Quintex	fill in the blank 2

2. Compute the break-even point in dollars for each company.

Trimax, Inc.	$fill in the blank 3
Quintex, Inc.	$fill in the blank 4

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	fill in the blank 6	%
Quintex	fill in the blank 7	%