Question
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. Sales $320,000 $400,000 Less: Variable costs
Operating Leverage
Income statements for two different companies in the same industry are as follows:
| Trimax, Inc. | Quintex, Inc. | |||
| Sales | $320,000 | $400,000 | ||
| Less: Variable costs | 160,000 | 80,000 | ||
| Contribution margin | $160,000 | $320,000 | ||
| Less: Fixed costs | 120,000 | 280,000 | ||
| Operating income | $40,000 | $40,000 |
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? Because it must cover more in fixed expenses.
3. Suppose that both companies experience a 60 percent increase in revenues. Compute the percentage change in profits for each company.
| Trimax | % | |
| Quintex | % |
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
