SunRise Inc. and SunSet Inc. have the following operating data: .................................SunRise Inc. ......................... SunRise Inc. Sales ........................

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SunRise Inc. and SunSet Inc. have the following operating data:
.................................SunRise Inc. ......................... SunRise Inc.
Sales ........................ $3,125.000 .............................. $8,400,000
Variable Costs ............ (1,875,000) .............................. (5,000,000)
Contribution margin ..... $ 1,250,000 ............................... (2,400,000)
Operating income ........ $ 500,000 ................................ $ 1,000,000
a. Compute the operating leverage for SunRise Inc. and SunSet Inc.
b. How much would operating income increase for each company if the sales of each increased by 25%?
c. Why is there a difference in the increase in operating income for the two companies? Explain.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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