Calculate the percentage increase in profit for each company

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Reference no: EM132725834

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

Company A Company B

Amount Sales % Amount 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:

Problem 1-a. Calculate the degree of operating leverage (DOL) for each company.

Problem 1-b. If sales increase from the present level, which company benefits more?

Problem 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.

Reference no: EM132725834

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