Question
In: Accounting
Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $290,900...
Beck Inc. and Bryant Inc. have the following operating data:
| Beck Inc. | Bryant Inc. | |||
| Sales | $290,900 | $895,000 | ||
| Variable costs | 116,700 | 537,000 | ||
| Contribution margin | $174,200 | $358,000 | ||
| Fixed costs | 107,200 | 179,000 | ||
| Income from operations | $67,000 | $179,000 | ||
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. | $ | % | |
c. The difference in the of income from operations 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.
Solutions
Expert Solution
Answer a:
Operating Leverage = Contribution margin / Operating Income
Operating Leverage Beck Inc. = 174200 / 67000 = 2.6
Operating Leverage Bryant Inc. = 358000 / 179000 = 2.0
Answer b:
Beck Inc.
Dollar Increase in income of Beck Inc. = Operating leverage * % increase in sales * Operating Income
= 2.6 * 15% *67000
= $26,130
% Increase in income of Beck Inc. = Operating leverage * % increase in sales = 2.6 * 15% = 39%
Bryant Inc.
Dollar Increase in income of Bryant Inc = Operating leverage * % increase in sales * Operating Income
= 2 * 15% *179000
= $53,700
% Increase in income of Bryant Inc = Operating leverage * % increase in sales = 2.0 * 15% = 30%
Answer c:
The difference in the increases of income from operations is due to the difference in the operating leverages. Beck Inc. s higher operating leverage means that its fixed costs are a larger percentage of contribution margins than are Bryant Inc.'s.
Beck Inc. 2.6 Bryant Inc. 2.0
Dollars Percentage $26,130 Beck Inc. 39 % $53,700 Bryant Inc. 30
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