a. Calculate the margin of safety in dollars for each firm.

 b. Calculate the degree of operating leverage for each firm.

 c. Determine the operating income for each firm if sales increase by 20%.

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Income statements for two different companies in the same industry are as follows: Company A $400,000 Sales Less: Variable costs Contribution margin Less: Fixed costs Operating income 300,000 $100,000 50,000 $ 50,000 Company B $400,000 200,000 $200,000 150,000 $50,000 Income statements for two different companies in the same industry are as follows: Company A $400,000 Sales Less: Variable costs Contribution margin Less: Fixed costs Operating income 300,000 $100,000 50,000 $ 50,000 Company B $400,000 200,000 $200,000 150,000 $50,000

Answer rating: 100% (QA)

To calculate the margin of safety and degree of operating leverage for both companies and determine their operating income if sales increase by 20 we can use the following formulas 1 Margin of Safety ... View the full answer