The Income Statements for two different companies that operate in the same industry are detailed below:

ABC XYZ

Sales $ 375,000 $375,000

Total Variable Costs 300,000 150,000

Contribution Margin $ 75,000 $225,000

Total Fixed Costs 50,000 200,000

Operating Income $ 25,000 $ 25,000

Required:

1. Compute the degree of operating leverage for each company.
2. Compute the break-even point in dollars for each company. Explain why the break-even point for the XYZ Company is higher.
3. Suppose that both companies experience a 30% increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in XYZs profits is so much larger than that of ABC.