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.

Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 25E
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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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