Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 6, Problem 25E
A.
To determine
Calculate the operating leverage for BE Incorporation and BR Incorporation.
B.
To determine
Calculate the increase in income from operations for Be Incorporation and Br Incorporation with the increase in sales of 20%.
C.
To determine
Explain the difference in the increase in income from operations for the two companies.
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Operating Leverage
Beck Inc. and Bryant Inc. have the following operating data:
Beck Inc.
Bryant Inc.
Sales
$238,500
$728,000
Variable costs
95,700
436,800
Contribution margin
$142,800
$291,200
Fixed costs
100,800
179,200
Income from operations
$42,000
$112,000
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 15%? If required, round answers to nearest whole number.
Dollars
Percentage
Beck Inc.
$____________
______________
%
Bryant Inc.
$___________
______________
%
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.
Operating Leverage
Beck Inc. and Bryant Inc. have the following operating data:
Beck Inc.
Bryant Inc.
Sales
$229,100
$589,500
Variable costs
(91,900)
(353,700)
Contribution margin
$137,200
$235,800
Fixed costs
(88,200)
(104,800)
Operating income
$49,000
$131,000
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.
$
%
Chapter 6 Solutions
Managerial Accounting
Ch. 6 - Describe how total variable costs and unit...Ch. 6 - Which of the following costs would be classified...Ch. 6 - Describe how total fixed costs and unit fixed...Ch. 6 - Prob. 4DQCh. 6 - Prob. 5DQCh. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - Prob. 9DQCh. 6 - What does operating leverage measure, and how is...
Ch. 6 - High-low method The manufacturing costs of...Ch. 6 - Contribution margin Waite Company sells 250,000...Ch. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Operating leverage Haywood Co. reports the...Ch. 6 - Margin of safety Jorgensen Company has sales of...Ch. 6 - Classify Costs Following is a list of various...Ch. 6 - Identify cost graphs The following cost graphs...Ch. 6 - Identify activity bases For a major university,...Ch. 6 - Prob. 4ECh. 6 - Identify fixed and variable costs Intuit Inc....Ch. 6 - Relevant range and fixed and variable costs Child...Ch. 6 - High-low method Ziegler Inc. has decided to use...Ch. 6 - Prob. 8ECh. 6 - Contribution margin ratio Young Company budgets...Ch. 6 - Contribution margin and contribution margin ratio...Ch. 6 - Prob. 11ECh. 6 - Break-even sales Anheuser-Busch InBev SA/NV (BUD)...Ch. 6 - Prob. 13ECh. 6 - Prob. 14ECh. 6 - Prob. 15ECh. 6 - Break-even analysis for a service company3 Sprint...Ch. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 22ECh. 6 - Prob. 23ECh. 6 - Prob. 24ECh. 6 - Prob. 25ECh. 6 - Classify costs Seymour Clothing Co. manufactures a...Ch. 6 - Break-even sales under present and proposed...Ch. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Contribution margin, break-even sales,...Ch. 6 - Classify costs Cromwell Furniture Company...Ch. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Contribution margin, break-even sales,...Ch. 6 - Analyze Global Airs cost-volume-profit...Ch. 6 - Prob. 2MADCh. 6 - Prob. 3MADCh. 6 - Prob. 4MADCh. 6 - Prob. 1TIFCh. 6 - Prob. 3TIFCh. 6 - Profitability strategies Somerset Inc. has...Ch. 6 - Prob. 5TIFCh. 6 - Analysis of costs for a shipping department Sales...Ch. 6 - Taylor Corporation is analyzing the cost behavior...Ch. 6 - Prob. 2CMACh. 6 - Bolger and Co. manufactures large gaskets for the...Ch. 6 - Prob. 4CMA
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- Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Quintexs profits is so much greater than that of Trimax.arrow_forwardIf a firm has a contribution margin of $59,690 and a net income of $12,700 for the current month, what is their degree of operating leverage? A. 0.18 B. 1.18 C. 2.4 D. 4.7arrow_forwardIf a firm has a contribution margin of $78M90 and a net income of $13,700 for the current month, what is their degree of operating leverage? 0.21 1.21 2.4 5.7arrow_forward
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