Q4. Observe the following two companies and their operating leverage

Particulars	Company A (Nu)	Company B (Nu)
Sales	2,50,000	3,15,000
V C	1,02,000	1,05,000
Contribution (a)	1,48,000	2,10,000
F C	63,000	1,25,000
Net income (loss) (b)	85,000	85,000
Operating leverage (a) / (b)	1.74	2.47

1. Both companies have the same net income of Nu 85,000, but company B has a higher degree of operating leverage. Why?

2. Let's assume that both company A and company B are anticipating a 10% increase in sales. Based on their respective degrees of operating leverage, what will their percentage change in net operating income? Explain with appropriate reasons.

3. What happens to Companies' % change in Net Income when there is 20% decrease in sales? Give reasons.