Company A is a manufacturer with current sales of $3.400,000 and a 60% contribut

Question

Company A is a manufacturer with current sales of $3.400,000 and a 60% contribution m argin. Its fixed costs equal $1,600,000. Company B is a consulting firm with current service revenues of $3.500.000 and a 25% contribution margin. lts fixed costs equal $410,000 Compute the degree of operating leverage (DOL) for each company. Contribution Margin I nt Company A Company lB Degree of Operating Leverage Choose Ratio Degree of Operating Leverage Numerator Denominator Company A Company B Identify which company benefits more from a 20% increase in sales. Company A Company B

Explanation / Answer

Company will benefit the most from more than 20 % increase in the sales.

Company A

              Contribution margin statement Particular Company A Company B Sales 3400000 3500000 Contribution 2040000 875000 Fixed Cost 1600000 410000 EBIT 440000 465000

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