Question: Company A is a manufacturer with current sales of
Company A is a manufacturer with current sales of $ 6,000,000 and a 60% contribution margin. Its fixed costs equal $ 2,600,000. Company B is a consulting firm with current service revenues of $ 4,500,000 and a 25% contribution margin. Its fixed costs equal $ 375,000. Compute the degree of operating leverage (DOL) for each company. Identify which company benefits more from a 20% increase in sales and explain why.
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