Operating Leverage Beck Inc. and Bryant Inc. have the following operating data:
ID: 2546962 • 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.
Beck Inc. Bryant Inc. Sales $210,400 $561,000 Variable costs 84,400 336,600 Contribution margin $126,000 $224,400 Fixed costs 56,000 37,400 Income from operations $70,000 $187,000Explanation / Answer
Req A: Operating Leverage = Total contribution/ Net Income Beck INC: $126,000 /70,000 =1.8 Bryant INC: $224,400 / 187,000 = 1.2 Operating Leverage Beck Inc 1.8 Bryant Inc 1.2 Req b: When sales increase by 10%, Net income increase by: Beck Inc =10*1.8 = 18% Bryant Inc: 10*1.2 = 12% Increase in $: Beck inc =70,000*18% = $12,600 Bryant Inc = 187,000*12% = $22,440 INCREASE IN INCOME Dollar % BECK INC 12600 18% BRYANT INC 22440 12% Req C: The difference in Higher % of Income fro operations is due to degree of operating leverage. Beck Inc's Higher Operating leveerage means that its fixed cost are a higher % of contribution margin than that of Bryant.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.