Operating leverage Beck Inc. and Bryant Inc.have the following operating data: Beck Inc. Bryant Inc. Sales $1,250,000 $2,000,000 Variable costs 750,000 1,250,000 Contribution margin $500,000 $ 750,000 Fixed costs 400,000 450,000 Income from operations $ 100,000 $300,000 a.Compute the operating leverage for Beck Inc.and Bryant Inc. b.How much would income from operations increase for each company if the sales of each increased by 20%? c.Why is there a difference in the increase in income from operations for the two companies? Explain.
Operating leverage Beck Inc. and Bryant Inc.have the following operating data: Beck Inc. Bryant Inc. Sales $1,250,000 $2,000,000 Variable costs 750,000 1,250,000 Contribution margin $500,000 $ 750,000 Fixed costs 400,000 450,000 Income from operations $ 100,000 $300,000 a.Compute the operating leverage for Beck Inc.and Bryant Inc. b.How much would income from operations increase for each company if the sales of each increased by 20%? c.Why is there a difference in the increase in income from operations for the two companies? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Operating leverage
Beck Inc. and Bryant Inc.have the following operating data:
|
|
Beck Inc. |
Bryant Inc. |
|
Sales |
$1,250,000 |
$2,000,000 |
|
Variable costs |
750,000 |
1,250,000 |
|
Contribution margin |
$500,000 |
$ 750,000 |
|
Fixed costs |
400,000 |
450,000 |
|
Income from operations |
$ 100,000 |
$300,000 |
a.Compute the operating leverage for Beck Inc.and Bryant Inc.
b.How much would income from operations increase for each company if the sales of each increased by 20%?
c.Why is there a difference in the increase in income from operations for the two companies? Explain.
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