Question

Operating Leverage

Beck Inc. and Bryant Inc. have the following operating data:

	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		$198,000

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 income from operations 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 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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Answer 1

	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