Operating Leverage

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

		Trimax, Inc.		Quintex, Inc.
Sales		$500,000		$625,000
Less: Variable costs		250,000		125,000
Contribution margin		$250,000		$500,000
Less: Fixed costs		200,000		450,000
Operating income		$50,000		$50,000

Required:

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

Trimax	fill in the blank
Quintex	fill in the blank

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

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

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	%
Quintex	fill in the blank	%