The following sales and cost data (in thousands) are for two companies in the transportation industry: Company A Percent Amount of Sales $ 190,000 100% 50 50% 95,000 $ 95,000 24,700 $ 70,300 Sales Variable costs Contribution margin Fixed costs Operating profit Company B Amount $ 190,000 57,000 $ 133,000 55,700 $77,300 Percent of Sales 100% 30 70% Required: 1-a. Calculate the degree of operating leverage (DOL) for each company. 1-b. If sales increase from the present level, which company benefits more? 2. Assume that sales rise 5% in the next year but that everything else remains constant. Calculate the percentage increase in profit for each company.

The following sales and cost data (in thousands) are for two companies in the transportation industry: Company A Percent Amount of Sales $ 190,000 100% 50 50% 95,000 $ 95,000 24,700 $ 70,300 Sales Variable costs Contribution margin Fixed costs Operating profit Company B Amount $ 190,000 57,000 $ 133,000 55,700 $77,300 Percent of Sales 100% 30 70% Required: 1-a. Calculate the degree of operating leverage (DOL) for each company. 1-b. If sales increase from the present level, which company benefits more? 2. Assume that sales rise 5% in the next year but that everything else remains constant. Calculate the percentage increase in profit for each company.

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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