Operating LeverageIncome statements for two different companies in the same industry are as follows:Trimax, Inc.Quintex, Inc.$400,000$562,500200,000112,500$200,000$450,000150,000400,000$50,000$50,000SalesLess: Variable costsContribution marginLess: Fixed costsOperating incomeRequired:1. Compute the degree of operating leverage for each company.TrimaxQuintex2. Compute the break-even point in dollars for each company.Trimax, Inc.Quintex, Inc.Why is the break-even point for Quintex, Inc., higher?3. Suppose that both companies experience a 40 percent increase in revenues. Compute the percentage change in profits for each company,Trimax Quintex Operating LeverageIncome statements for two different companies in the same industry are as follows:Trimax, Inc.Quintex, Inc.Sales$400,000$562,500Less: Variable costs200,000112,500Contribution margin$200,000$450,000Less: Fixed costs150,000400,000Operating income$50,000$50,000Required:1. Compute the degree of operating leverage for each company.TrimaxQuintex2. Compute the break-even point in dollars for each company.Trimax, Inc.Quintex, Inc.Why is the break-even point for Quintex, Inc., higher?3. Suppose that both companies experience a 40 percent increase in revenues. Compute the percentage change in profits for each company.TrimaxQuintex

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Answered: Operating Leverage Income statements…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. $400,000 $562,500 200,000 112,500 $200,000 $450,000 150,000 400,000 $50,000 $50,000 Sales Less: Variable costs Contribution margin Less: Fixed costs Operating income 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? 3. Suppose that both companies experience a 40 percent increase in revenues. Compute the percentage change in profits for each company, Trimax Quintex

Operating Leverage
Income statements for two different companies in the same industry are as follows:
Trimax, Inc.
Quintex, Inc.
Sales
$400,000
$562,500
Less: Variable costs
200,000
112,500
Contribution margin
$200,000
$450,000
Less: Fixed costs
150,000
400,000
Operating income
$50,000
$50,000
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?
3. Suppose that both companies experience a 40 percent increase in revenues. Compute the percentage change in profits for each company.
Trimax
Quintex

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