The following sales and cost data (in thousands) are for two companies in the transportation industry:

Required

1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the present level, which company benefits more? How do you know?

2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate the percentage increase in profit for each company. Are the results what you expected? Explain.

3. In what sense is DOL a measure of risk?

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Company A Percent of Sales 100% Company B Percent of Sales Amount Amount 100% 30 Sales $100,000 $100,000 30,000 $ 70,000 40,000 $ 30,000 Varlable costs Contribution margin 50 $ 50,000 15,000 $ 35,000 50% 70% Flxed costs Operating profit