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Operating Leverage

Income statements for two different companies in the same industry are as follows:

Trimax, Inc. Quintex, Inc.

Sales $$240,000$ $$300,000$

Less: Variable costs $120,00060,000$

Contribution margin $$120,000$ $$240,000$

Less: Fixed costs $90,000210,000$

Operating income $$30,000$ $$30,000$

Required:

$1.$ Compute the degree of operating leverage for each company.

Trimax fill in the blank $1$

Quintex fill in the blank $2$

$2.$ Compute the break$-$even point in dollars for each company.

Trimax, Inc. $fill in the blank $3$

Quintex, Inc. $fill in the blank $4$

Why is the break$-$even point for Quintex, Inc., higher?

Because it must cover more in fixed expenses.

$3.$ Suppose that both companies experience a $40$ percent increase in revenues. Compute the percentage change in profits for each company.

Trimax fill in the blank $6$

$\%$

Quintex fill in the blank $7$

$\%$