Response to the following problem:
Rose Inc. and Tulip Inc. have the following operating data:
|
|
Rose Inc
|
Tulip Inc.
|
|
Sales
|
$920,000
|
$1,050,000
|
|
Variable costs
|
552,000
|
630,000
|
|
Contribution margin
|
$368,000
|
S 420,000
|
|
Fixed costs
|
288,000
|
270,000
|
|
Income from operations
|
$ 80,000
|
$ 150,000
|
a. Compute the operating leverage for Rose Inc. and Tulip Inc.
b. How much would income from operations increase for each company if the sales of each increased by 25%?
c. Why is there a difference in the increase in income from operations for the two companies? Explain.