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.

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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