SunRise Inc. and SunSet Inc. have the following operating data Sales Variable co

Question

SunRise Inc. and SunSet Inc. have the following operating data Sales Variable costs Contribution margin Fixed costs Operating income SunRise Inc. $229,100 (91,900) $137,200 (88,200) $49,000 SunSet Inc. $589,500 (353,700) $235,800 (104,800) $131,000 a. Compute the operating leverage for SunRise Inc. and SunSet Inc. Round the answers to one decimal place. SunRise Inc. SunSet Inc. b. How much would operating income increase for each company if the sales of each increased by 15%? Dollars Percentage SunRise Inc. SunSet Inc. c. SunRise Inc.'s higheroperating leverage means that its fixed costs are a larger percentage of contribution margin than are SunSet Inc.'s. Thus, increases in sales increase operating profit at a faster rate for SunRise Inc. than for SunSet Inc.

Explanation / Answer

a Sunrise inc. 2.8 =137200/49000 Sunset inc. 1.8 =235800/131000 b Dollars Percentage Sunrise inc. 20580 42% Sunset inc. 35370 27%

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