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How much would income from operations increase

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Problem - Operating leverage - Fulp Inc. and Baucom Inc. have the following operating data:

 

Fulp

Baucom

Sales

$3,000,000

$1,600,000

Variable costs

1,400,000

600,000

Contribution margin

$1,600,000

$1,000,000

Fixed costs

1,200,000

600,000

Income from operations

$400,000

$400,000

Required -

a. Compute the operating leverage for Fulp Inc. and Baucom Inc.

b. How much would income from operations increase for each company if the sales of each increased by 25%?

c. Why is there a difference in the increase in income from operations for the two companies? Explain.

Reference no: EM132881693

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