Question

Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $191,000 $585,000 Variable costs 76,600 351,000 Contribution margin $114,400 $234,000 Fixed costs 70,400 117,000 Income from operations $44,000 $117,000

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 20%? If required, round answers to nearest whole number. Dollars Percentage Beck Inc. $______ %_______    Bryant Inc. $______ %________

Answer 1

a.	Operating leverage=Contribution margin/Income from operations
				Beck Inc.	Bryant Inc.
	Contribution margin               a			114400	234000
	Income from operations       b			44000	117000
	Operating leverage		a/b	2.6	2
b.	Increase in income from operations=Increase in sales*Operating leverage
				Beck Inc.	Bryant Inc.
	Increase in sales		a	20%	20%
	Operating leverage		b	2.6	2
	Increase in income from operations		a*b	52%	40%