Respuesta :
Answer:
Company A 5.41
Company B 1.76
Company A benefits more from a 20% increase in sales.
Explanation:
The computation of the degree of operating leverage is shown below:-
Particulars       Company A      Company B
Sales            $3,700,000      $3,800,000
Less:
Variable cost      $1,480,000       $3,040,000
             ($3,700,000 × 40%)   ($3,800,000 × 80%)
Contribution
margin          $2,220,000       $760,000
           ($3,700,000 × 60%)   ($3,800,000 × 80%)
Less:
Fixed cost       $1,810,000        $330,000
Pretax income    $410,000         $430,000
After this we need to go further so that we can find out the degree of operating leverage For both company
For Company A
= Contribution margin ÷ Pretax income
= $2,220,000 ÷ $410,000
= 5.41
For company B
= Contribution margin ÷ Pretax income
= $760,000 ÷ $430,000
= 1.76
So, from the above calculation we can see that Company A is higher than Company B.
