Operating Leverage These sales and cost data (000s) are for two companies in the transportation industry:
Company A Company B
Sales Amount
$100,000 Percent of sales
100%
Amount
$100,000 Percent of sales
100%
Variable costs
60,000
60
30,000
30
Contribution margin
$ 40,000
40%
$ 70,000
70%
Fixed costs
15,000
40,000
Operating profit
$ 25,000
$ 30,000
Required
Calculate the operating leverage for each company. If sales increase, which company benefits more? How do you know?
Assume that sales rise 10 percent in the next year. Calculate the percentage increase in profit for each company. Are the results what you expected?