Atech has fixed costs of $7 million and profits of $4 million. its competitor, ztech, is roughly the same size and this year earned the same profits, $4 million. but it operates with higher fixed costs of $8 million and lower variable costs. a. what is the degree of operating leverage (dol) for each company? (defined here as 1 + fixed costs/profit.) (do not round intermediate calculations. round your answers to 2 decimal places.)

Degree of Operating Leverage

A Tech = 2.75

Z Tech = 3

Explanation:

As defined in question itself,

Degree of Operating Leverage =

As here, it is provided that profit for both the companies are same amounting $4 million.

Although the fixed cost differ by $1 million.

A Tech Degree of operating Leverage = 1 + = 2.75

Z Tech Degree of Operating Leverage = 1 + = 3

This clearly demonstrates that A Tech will reach its break even faster than the Z Tech as the ratio of fixed cost to variable cost is lower in A tech in comparison to Z Tech.