Question

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

	Beck Inc.		Bryant Inc.
Sales	$278,200		$786,000
Variable costs	111,600		471,600
Contribution margin	$166,600		$314,400
Fixed costs	117,600		183,400
Income from operations	$49,000		$131,000

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 10%? If required, round answers to nearest whole number.

	Dollars	Percentage
Beck Inc.	$		%
Bryant Inc.	$		%

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.

Answer 1

a.Operating Leverage = Contribution Margin/Net operating Income

Beck Inc. = 166,600/49,000 = 3.4 Times

Brynat Inc. = 314,400/131,000 = 2.4 Times

b.

	Beck Inc.	Bryant Inc.
Revised Sales	306,020	864,600
Variable Cost @110%	122,760	518,760
Contribution margin	183,260	345,840
Fixed Costs	117,600	183,400
Income from Operations	$65,660	$162,440

Hence , the answer is as follows:

	Dollars	%
Beck Inc.	16,660	34%
Bryant Inc.	31,440	24%

Alternative: This could have been calculated by using operating leverage as:

Beck Inc. 3.4*10 = 34%

Bryant Inc. 2.4*10 = 24%

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 are higher than Bryant Inc.'s