Reference no: EM132772796

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

                                Company A      Amount Percent of Sales             Company B    Amount Percent of Sales

Sales                   $160,000             100%                                    $160,000              100%

Variable costs        80,000                 50                                          32,000                 20

Contribution margin   $80,000          50%                                         $128,000               80%

Fixed costs                28,000                                                          53,000

Operating profit           $52,000                                                          $75,000

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.