Operating Leverage Beck Inc. and Bryant Inc. have the following operating data:
ID: 2529544 • Letter: O
Question
Operating Leverage
Beck Inc. and Bryant Inc. have the following operating data:
a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place.
b. How much would income from operations increase for each company if the sales of each increased by 10%? If required, round answers to nearest whole number.
c. The difference in the of income from operations is due to the difference in the operating leverages. Beck Inc.'s operating leverage means that its fixed costs are a percentage of contribution margin than are Bryant Inc.'s.
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Beck Inc. Bryant Inc. Sales $188,400 $500,000 Variable costs 75,600 300,000 Contribution margin $112,800 $200,000 Fixed costs 65,800 75,000 Income from operations $47,000 $125,000Explanation / Answer
a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place.
operating leverage = CM / NOI
Beck Inc. = $112,800 / 47000 = 2.4 times
Bryant Inc = $200,000 / 125000 = 1.6 times
b. How much would income from operations increase for each company if the sales of each increased by 10%?
Beck Inc. =2.4 * 10 = 24 %
Bryant Inc = 1.6 * 10 = 16 %
C. The difference in the increase of income from operations is due to the difference in the operating leverages. Beck Inc.'s Higher operating leverage means that its fixed costs are a larger percentage of contribution margin than are Bryant Inc.'s.
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