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.