Operating Leverage

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

		Trimax, Inc.		Quintex, Inc.
Sales		$480,000		$750,000
Less: Variable costs		240,000		150,000
Contribution margin		$240,000		$600,000
Less: Fixed costs		180,000		540,000
Operating income		$60,000		$60,000

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 50 percent increase in revenues. Compute the percentage change in profits for each company.

Trimax		%
Quintex		%