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Operating leverage

Asha Inc. and Samir Inc. have the following operating data:

Line Item Description	Asha Inc.	Samir Inc.
Sales	$2,500,000	$4,000,000
Variable costs	(1,500,000)	(2,500,000)
Contribution margin	$1,000,000	$1,500,000
Fixed costs	(800,000)	(900,000)
Operating income	$200,000	$600,000

a. Compute the operating leverage for Asha Inc. and Samir Inc. If required, round to one decimal place. Asha Inc. fill in the blank 1 of 2 Samir Inc. fill in the blank 2 of 2

b. How much would operating income increase for each company if the sales of each increased by 30%?

Company	Dollars	Percentage
Asha Inc.	$fill in the blank 3	fill in the blank 4%
Samir Inc.	$fill in the blank 5	fill in the blank 6%

c. The difference in the fill in the blank 1 of 3

increasesdecreasesincreases

of operating income is due to the difference in the operating leverages. Asha Inc.'s fill in the blank 2 of 3

higherlowerhigher

operating leverage means that its fixed costs are a fill in the blank 3 of 3

largersmallerlarger

percentage of contribution margin than are Samir Inc.'s.