PA8. LO 3.5 Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,610,000 and a 45% contribution margin. Its fixed costs are $1,800,000. A. What is the margin of safety for Jakarta and Maldives? B. Compare the margin of safety in dollars between the two companies. Which is stronger? C. Compare the margin of safety in percentage between the two companies. Now, which one is stronger? D. Compute the degree of operating leverage (original contribution margin / operating income) for both companies. Which company will benefit most from a 15% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 15%. Solution A. Jakarta Jakarta Maldives Maldives Break-even Break-even Sales Variable Cost Contribution Margin Fixed Costs Operating Income Marg. of Safety- $/% $ % % Operating Leverage B. C. D. Which company will benefit most? Jakarta Maldives Sales Contribution margin (a) Fixed costs Net income (loss) (b) Increase in income % change in income This resource file is copyright 2019, Rice University. All Rights Reserved