Brake, Inc. Carbo, Inc.
Sales $300,000 $300,000
Variable Costs 60,000 180,000
Fixed Costs 210,000 90,000
Operating Income $30,000 $30,000
i) Compute contribution margins for two companies.
ii) Compute break-even point for each firm, in dollars and in units.
iii) Compare and contrast the two companies. What conclusions could you make about the use of operating leverage employed by two firms?
iv) Suppose that both companies experience the increase in sales by 15% next year. Determine the operating income for each firm net year? Describe the difference in change in operating income between the two companies.
v) Based on information from above problems, what advice would you make to two companies and describe why?