Chapter 11 - Homework Hide or show questions Progress:8/8 items eBook Operating Leverage SunRise Inc. and SunSet Inc. have the following operating data: SunRise Inc. SunSet Inc Sales $ 3,125,000 $ 8,400,000 Variable costs (1,875,000) (5,000,000) Contribution margin $ 1,250,000 $ 3,400,000 Fixed costs (750,000) (2,400,000) Operating income $ 500,000 $ 1,000,000 a. Compute the operating leverage for SunRise Inc. and SunSet Inc. If required, round to one decimal place. SunRise Inc. fill in the blank 1 2.5 SunSet Inc. fill in the blank 2 3.4 b. How much would operating income increase for each company if the sales of each increased by 25%? If required, round to one decimal place. Dollars Percentage SunRise Inc. $fill in the blank 3 312,500 fill in the blank 4 62.50 % SunSet Inc. $fill in the blank 5 fill in the blank 6 % c. Why is there a difference in the increase in operating income for the two companies? SunSet Inc.s higher operating leverage means that there are proportionately fixed costs in its cost structure than variable costs. As such, its contribution margin per unit is . Each additional unit sold by SunSet has a impact on operating income than does each additional unit sold by SunRise. Feedback a. Divide the contribution margin by the operating income. b. Multiply percentage change in sales by operating leverage. c. Higher operating leverage means that there are proportionately more fixed costs in its cost structure than variable costs.