Operating Leverage

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

Trimax, Inc. Quintex, Inc. Sales $600,000 $750,000 Less: Variable costs 300,000 150,000 Contribution margin $300,000 $600,000 Less: Fixed costs 240,000 540,000 Operating income $60,000 $60,000 Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 10 2. Compute the break-even point in dollars for each company, Trimax, Inc. $ 480,000 Quintex, Inc. $ 675,000 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 50 percent increase in revenues. Compute the percentage change in profits for each company. Trimax X % Quintex