Question:
Juras Inc. and Hinson Inc. have the following operating data:
|
|
Juras
|
Hinson
|
|
Sales
|
$160,000
|
$215,000
|
|
Variable costs
|
130,000
|
115,000
|
|
Contribution margin
|
$ 30,000
|
$100,000
|
|
Fixed costs
|
20,000
|
75,000
|
|
Income from operations
|
$ 10,000
|
$ 25,000
|
a. Compute the operating leverage for Juras Inc. and Hinson Inc.
b. How much would income from operations increase for each company if the sales of each increased by 10%?
c. Why is there a difference in the increase in income from operations for the two companies? Explain.