Question: Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. Sales $500,000 $625,000 Less: Variable costs

Operating Leverage

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

Trimax, Inc. Quintex, Inc.
Sales $500,000 $625,000
Less: Variable costs 250,000 125,000
Contribution margin $250,000 $500,000
Less: Fixed costs 200,000 450,000
Operating income $50,000 $50,000

Required:

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

Trimax fill in the blank
Quintex fill in the blank

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

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

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

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 %
Quintex fill in the blank %

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