Duncan Macduff Sales $375,000 $375,000 Total variable cost 300,000 150,000 $ 75,000 Contribution margin Total fixed cost $225,000 50,000 200,000 Operating income $ 25,000 $ 25,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Income statements for two different companies in the same industry are as follows:

Required:
1. Compute the degree of operating leverage for each company.
2. CONCEPTUAL CONNECTION Compute the break-even point in dollars for each
company. Explain why the break-even point for Macduff is higher.
3. CONCEPTUAL CONNECTION Suppose that both companies experience a 30% increase
in revenues. Compute the percentage change in profits for each company. Explain why the
percentage increase in Macduff ’s profits is so much larger than that of Duncan.

Duncan
Macduff
Sales
$375,000
$375,000
Total variable cost
300,000
150,000
$ 75,000
Contribution margin
Total fixed cost
$225,000
50,000
200,000
Operating income
$ 25,000
$ 25,000
Transcribed Image Text:Duncan Macduff Sales $375,000 $375,000 Total variable cost 300,000 150,000 $ 75,000 Contribution margin Total fixed cost $225,000 50,000 200,000 Operating income $ 25,000 $ 25,000
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