Income statements for two different companies in the same industry are as follows:

Required:
1. Compute the degree of operating leverage for each company.
2. Compute the break-even point for each company. Explain why the break-even point for Company B is higher.
3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Company B's profits is so much larger than that of CompanyA.

Company A $500,000 400,000 $100,000 Company B $500,000 200,000 $300,000 250,000 $ 50,000 Sales Less: Variable costs Contribution margin Less: Fixed costs 50,000 Operating income $50,000