Operating Leverage Beck Inc. and Bryant Inc. have the following operating data:
ID: 2559549 • 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 20%? 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.
Beck Inc. Bryant Inc. Sales $1,250,000 $2,000,000 Variable costs 750,000 1,250,000 Contribution margin $500,000 $750,000 Fixed costs 400,000 450,000 Income from operations $100,000 $300,000Explanation / Answer
1)operating leverage = contribution/net income
5
2)income from operations increase = increase in sales *degree of operating leverage
dollar increase = net income *pecentage
the difference in the increase of income from operations is due to the difference in operating leverages.Beck's higher operating leverage means that its fixed cost are a larger percentage of contribution margin than are Bryant's inc .thus increase in sales increase operating profit at a faster rate for Beck inc than for Bryant inc.
1)operating leverage = contribution/net income
Beck inc5
Byrant 2.52)income from operations increase = increase in sales *degree of operating leverage
dollar increase = net income *pecentage
dollars percentage Beck 100,000 100 Byrant 150,000 50the difference in the increase of income from operations is due to the difference in operating leverages.Beck's higher operating leverage means that its fixed cost are a larger percentage of contribution margin than are Bryant's inc .thus increase in sales increase operating profit at a faster rate for Beck inc than for Bryant inc.
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