Question

Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $186,700 $517,500 Variable costs 74,900 310,500 Contribution margin $111,800 $207,000 Fixed costs 68,800 92,000 Income from operations $43,000 $115,000 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%

Answer 1

a. Operating leverage = Contribution Margin / Income for operation

Beck Inc. = $111,800 / $43,000 = 2.6 times

Bryant Inc = $207,000 / $115,000 = 1.8 times

b. Increase on Income from operations for each company if the sales of each increased by 20%? will be:

Beck Inc = 2.6 * 10%

=0.52

=52%

Bryant Inc = 1.8 * 20

=0.36

=36%