due Mar $24$

Week $4$: Cost Volume Profit $($CVP$)$ Analysis

Please interpret Company A and Company B$\text{'}$s results below in terms of the factors that impact Cost Volume Profit Analysis $($CVP$).$ Why does Company B have the greater degree of operating leverage? As a manager, why is operating leverage an important concept?

Company A Company B

Sales $(10,000$ units times $$26)$ $$260,000$ Sales $(10,000$ units times $$32)$ $$320,000$

Less Variable expenses $(10,000$ units $$16)160,000$ Less Variable expenses $(10,000$ units times $$20)200,000$

Contribution margin $($a$)100,000$ Contribution margin $($a$)120,000$

Less Fixed expenses $80,000$ Less Fixed expenses $100,000$

Net operating income $($b$)20,000$ Net operating income $($b$)20,000$

Degree of operating leverage $($a divided by b$)5\mathrm{.}0$ Degree of operating leverage $($a divided by b$)6\mathrm{.}0$