Chapter 3, Problem 8PA

Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,610,000 and a 45% contribution margin. Its fixed costs are $1,800,000.

1. What is the margin of safety for jaka rta and Maldives?
2. Compare the margin of safety in dollars between the two companies. Which is stronger?
3. Compare the margin of safety in percentage between the two companies. Now, which one is stronger?
4. Compute the degree of operating leverage for both companies. Which company will benefit most from a 15% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 15%.