Question

Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $219,400 $585,000 Variable costs 88,000 351,000 Contribution margin $131,400 $234,000 Fixed costs 58,400 39,000 Income from operations $73,000 $195,000
a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. Beck Inc. fill in the blank 1 Bryant Inc. fill in the blank 2
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. $fill in the blank 3 fill in the blank 4 % Bryant Inc. $fill in the blank 5 fill in the blank 6 %
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.

Answer 1

Answer:

Beck Inc. and Bryant Inc.

                                         Beck Inc.       Bryant Inc.

a. Operating leverage          0.4                     0.1

b. Increase in income     $19,710 (27%)   $35,100 (18%)

c. The difference in the INCREASE 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 HIGHER percentage of contribution margin than are Bryant Inc.'s.

Explanation:

a) Data and Calculations:

                                           Beck Inc.       Bryant Inc.

Sales                                $219,400         $585,000

Variable costs                     88,000            351,000

Contribution margin        $131,400         $234,000

Fixed costs                         58,400             39,000

Income from operations $73,000          $195,000

Total costs                     $146,400         $390,000

Operating leverage             1.8                     1.2

Operating leverage = Contribution Margin/Income from operations

Increase in Sales by 15%

                                           Beck Inc.       Bryant Inc.

Sales                                 $252,310         $672,750

Variable costs                     101,200           403,650

Contribution margin          $151,110          $269,100

Fixed costs                         58,400              39,000

Income from operations  $92,710          $230,100

Increase in income           $19,710 (27%)   $35,100 18%