1. Assuming variable costs are the same for both companies, which company has the higher operating leverage?

2. At what approximate level of sales (units) is break-even for Company A? Company B?

3. At what level of sales (units) are their Earnings before interest and taxes (EBITs) equal?

4. At what level of sales (units) is the additional fixed costs worth the risk for Company B? Why?

Sensitivity of EBIT to Operating Leverage \begin{tabular}{cc|rrrr} \hline & & \multicolumn{2}{c}{ Company A } & \multicolumn{2}{c}{ Company B } \\ \hline & & $ & 15,000 & $ & 20,000 \\ \hline S & 0 & $ & (15,000) & $ & (20,000) \\ A & 5,000 & $ & (4,000) & $ & (7,750) \\ L & 10,000 & $ & 7,000 & $ & 4,500 \\ E & 15,000 & $ & 18,000 & $ & 16,750 \\ S & 20,000 & $ & 29,000 & $ & 29,000 \\ (units) & 25,000 & $ & 40,000 & $ & 41,250 \\ & 30,000 & $ & 51,000 & $ & 53,500 \\ & 50,000 & $ & 95,000 & $ & 102,500 \\ & 60,000 & $117,000 & $ & 127,000 \\ & 70,000 & $139,000 & $ & 151,500 \end{tabular}