Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. $1,250,000 $2,000,000 (750,000) (1,250,000) $500,000 $750,000 (400,000) (450,000) $100,000 $300,000 Sales Variable costs Contribution margin Fixed costs Operating income 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 operating income increase for each company if the sales each increased by 20%? Dollars Percentage Beck Inc. Bryant Inc. c. The difference in the contribution margin than are Bryant Inc.'s. of operating income is due to the difference in operating leverages. Beck Inc.'s operating leverage means that its fixed costs are a percentage of

Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. $1,250,000 $2,000,000 (750,000) (1,250,000) $500,000 $750,000 (400,000) (450,000) $100,000 $300,000 Sales Variable costs Contribution margin Fixed costs Operating income 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 operating income increase for each company if the sales each increased by 20%? Dollars Percentage Beck Inc. Bryant Inc. c. The difference in the contribution margin than are Bryant Inc.'s. of operating income is due to the difference in operating leverages. Beck Inc.'s operating leverage means that its fixed costs are a percentage of

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Morse Company reports total contribution margin of $63,210 and pretax net income of $12,900 for the current month. The degree of operating leverage is:
Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $1,250,000 $2,000,000 Variable Cost 750,000 1,250,000 Contribution Margin 500,000 750,000 Fixed Cost 400,000 450,000 Income from Operation $100,000 $300,000 Compute the operating leverage for Beck Inc. and Bryant Inc. How much would income from operations increase for each company if the sales of each increased by 20%? Why is there a difference in the increase in income from operations for the two companies? Explain.
Degree of Operating Leverage The following sales and cost data (in thousands) are for twocompanies in the transportation industry:Company A Company BAmount Percent of Sales Amount Percent of SalesSales $100,000 100% $100,000 100%Variable costs 50,000 50 30,000 30Contribution margin $ 50,000 50% $ 70,000 70%Fixed costs 15,000 40,000Operating profit $ 35,000 $ 30,000Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the presentlevel, which company benefits more? How do you know?2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate thepercentage increase in profit for each company. Are the results what you expected? Explain.3. In what sense is DOL a measure of risk?
Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $275,600 $882,000 Variable costs 110,600 529,200 Contribution margin $165,000 $352,800 Fixed costs 110,000 205,800 Income from operations $55,000 $147,000 a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. Вeck Inc. Bryant Inc. 2.4 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 Вeck Inc. $ 33,000 60 V % Bryant Inc. 70,560 57 X % c. The difference in the increases of income from operations is due to the difference in the operating leverages. Beck Inc.'s higher v operating leverage means that its fixed costs are a larger percentage of contribution margin than are Bryant Inc.'s.
Operating Leverage
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What is Harley's operating leverage? 3.1, 1.3 or 1.2
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Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $267,200 $871,000 Variable costs (107,200) (522,600) Contribution margin $160,000 $348,400 Fixed costs (110,000) (214,400) Operating income $50,000 $134,000 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 operating income 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. $ % c. The difference in the of operating income 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.
Consider the following summary modified income statement for Tech Inc.: Sales $593,000 Variable Operating Costs 252,000 Contribution Margin $341,000 Fixed Operating Costs 121,000 Operating Income $220,000 Interest Expense 26,000 Net Income $194,000 Calculate Tech's degree of operating leverage. A В C E 1 2 Degree of Operating Leverage = 4 5 7 8 9 10 3. 6.
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