Reference no: EM133056762

The following sales and cost data (in thousands) are for two companies in the transportation industry:

	Company A	Company B
Amount	Percent of Sales	Amount	Percent of Sales
Sales	$ 240,000	100%	$ 240,000	100%
Variable costs	120,000	50	72,000	30
Contribution margin	$ 120,000	50%	$ 168,000	70%
Fixed costs	21,600		62,600
Operating profit	$ 98,400		$ 105,400

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 10% in the next year but that everything else remains constant. Calculate the percentage increase in profit for each company.

Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows:

Sales		$ 33,000,000
Operating expenses:
Variable expenses	$ 26,400,000
Fixed expenses	3,300,000
Total expenses		29,700,000
Operating profit		$ 3,300,000

Required:

1. Determine the breakeven point in sales dollars.

2. Determine the required sales in dollars to earn a before-tax profit of $3,900,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

3. What is the breakeven point in sales dollars if the variable expenses increases by 12%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)