Operating Leverage Income statements for two different companies in the same industry are as follows: hs Elgin, Inc. Hobart, Inc. Sales $800,000 $800,000 Less: Variable costs 640,000 480,000 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. Elgin 4 Hobart 8 2. Compute the break-even point in dollars for each company. Elgin, Inc. 600,000 Hobart, Inc. 700,000 Why is the break-even point for Hobart, Inc., higher? Because it must cover more in fixed expenses. $40,000 $40,000 Operating income Required: 1. Compute the degree of operating leverage for each company. Elgin 4 Hobart 8 2. Compute the break-even point in dollars for each company. Elgin, Inc. 600,000 Hobart, Inc. 700,000 Why is the break-even point for Hobart, 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. Elgin 240 % Hobart 480 %