Question

Operating Leverage

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

	Beck Inc.		Bryant Inc.
Sales	$177,000		$497,000
Variable costs	71,000		298,200
Contribution margin	$106,000		$198,800
Fixed costs	53,000		56,800
Income from operations	$53,000		$142,000

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

Operating leverage = Contribution margin /operating income

Beck (106,000/53,000)	2
Bryant (198,800/142,000)	1.40

2.

	Dollars	%
Beck	63,600	20%
Bryant	161,880	14%

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