Company A is a manufacturer with current sales of $3,500,000 and a 50% contribution margin. Its fixed costs equal $1,320,000. Company B is a consulting firm with current service revenues of $3,600,000 and a 20% contribution margin. Its fixed costs equal $270,000.
Compute the degree of operating leverage (DOL) for each company.
Identify which company benefits more from a 20% increase in sales.
Company A
Company B