a) Computation of operating leverage | ||||
Operating leverage = contribution margin/income from operation | ||||
Beck Inc = 148400/53000 = 2.8 | ||||
Bryant Inc = 312400/142000 = 2.2 | ||||
b) Calculation of income from operation | ||||
Particulars | Beck Inc | Bryant Inc | ||
sale @ 20% increase | 297360 | 937200 | ||
less: variable cost 20% increase | 119280 | 562320 | ||
contribution margin | 178080 | 374880 | ||
less: Fixed cost | 95400 | 170400 | ||
Income from operations after increase in sale | 82680 | 204480 | ||
less: income from operation | 53000 | 142000 | ||
Increase in income from operation | 29680 | 62480 | ||
Increase in percentage | 56% | 44% | ||
c) The Difference in the Increase of income from operations is due to | ||||
the difference in the operating leverages Beck inc is higher operating | ||||
leverage means that its fixed costs are larger percentage of contribution | ||||
margin than bryant inc's |
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