Operating Leverage Beck Inc. and Bryant Inc. have the following operating data:
ID: 2557825 • 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 15%? If required, round answers to nearest whole number.
c. The difference in the increases 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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Beck Inc. Bryant Inc. Sales $395,500 $1,188,000 Variable costs 158,700 712,800 Contribution margin $236,800 $475,200 Fixed costs 162,800 277,200 Income from operations $74,000 $198,000Explanation / Answer
Particulars Beck Inc. Bryant Inc. Sales 395500 1188000 Variable Cost 158700 712800 Contribution Margin 236800 475200 Fixed Costs 162800 277200 Income from Operations 74000 198000 A Operating Leverage: Contribution Margin/Income from Operations Particulars Beck Inc. Bryant Inc. Contribution Margin 236800 475200 Income from Operations 74000 198000 Operating Leverage 3.20 2.40 B Revised: Particulars Beck Inc. Bryant Inc. Sales 454825 1366200 Variable Cost 182505 819720 Contribution Margin 272320 546480 Fixed Costs 162800 277200 Income from Operations 109520 269280 Existing Income: Income from Operations 74000 198000 Increase % 48.00% 36.00% C Requirement not clear
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