Question

Based on the information below, which company has the greater operating leverage? Company A Company B...

Based on the information below, which company has the greater operating leverage?

Company A Company B

Net sales 1,000,000 2,000,000

Variable cost 600,000 1,000,000

Fixed cost 300,000 300,000

Net income 100,000 700,000

Company A , company B, or they have the same operating leverage

Business   Accounting   
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Answer #1
Opertaing Leverage = Contribution margin / Net Income
A B
Net Sales $ 10,00,000 $   20,00,000
variable cost $   6,00,000 $   10,00,000
(i) Contribution margin $   4,00,000 $   10,00,000
Fixed cost $   3,00,000 $      3,00,000
(ii) Net Income $   1,00,000 $      7,00,000
(i) / (ii) Operating Leverage 4 1.43
Therefore Company A is having greater operating leverage.
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