Question
Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $374,100 $1,122,000 Variable costs (150,100) (673,200) Contribution margin
Operating Leverage
Beck Inc. and Bryant Inc. have the following operating data:
Beck Inc. | Bryant Inc. | |||
Sales | $374,100 | $1,122,000 | ||
Variable costs | (150,100) | (673,200) | ||
Contribution margin | $224,000 | $448,800 | ||
Fixed costs | (154,000) | (261,800) | ||
Operating income | $70,000 | $187,000 |
a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place.
Beck Inc. | |
Bryant Inc. |
b. How much would operating income increase for each company if the sales of each increased by 15%? If required, round answers to nearest whole number.
Dollars | Percentage | ||
Beck Inc. | $ | % | |
Bryant Inc. | $ | % |
c. The difference in the increases of operating income 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started