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In: Accounting

Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax,...

Operating Leverage

Income statements for two different companies in the same industry are as follows:

Trimax, Inc. Quintex, Inc.
Sales $600,000     $675,000    
Less: Variable costs 300,000     135,000    
   Contribution margin $300,000     $540,000    
Less: Fixed costs 240,000     480,000    
   Operating income $60,000     $60,000    

Required:

1. Compute the degree of operating leverage for each company.

Trimax
Quintex

2. Compute the break-even point in dollars for each company.

Trimax, Inc. $
Quintex, Inc. $

Why is the break-even point for Quintex, Inc., higher?
Because it must cover more in fixed expenses.

3. Suppose that both companies experience a 60 percent increase in revenues. Compute the percentage change in profits for each company.

Trimax %
Quintex %

Solutions

Expert Solution

For any clarifications please comment.

ekkarill92 answered 2 years ago
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