Question

Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $264,900 $815,000 Variable costs 106,300 489,000 Contribution margin $158,600 $326,000 Fixed costs 97,600 163,000 Income from operations $61,000 $163,000 a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. b. How much would income from operations increase for each company if the sales of each increased by 15%? Sales Mix and Break-Even Sales Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are as follows: Products Unit Selling Price Unit Variable Cost Sales Mix Laptops $260 $180 30% Tablets 470 220 70% The estimated fixed costs for the current year are $1,042,760. Required: 1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year. 2. Based on the break-even sales (units) in part (1), determine the unit sales of both laptops and tablets for the current year.

Answer 1

(1) Operating leverage = contribution margin / income from operations

	Beck	Bryant
Contribution Margin	$158,600	$326,000
Income from operations	$61,000	$163,000
Operating Leverage (Contribution margin/income from operations)	2.6(158,600/61,000)	2.0(326,000/163,000)

(2) increase in income = Increase in sales*operating leverage

Beck = 15%*2.6

=39%

Bryant =15%*2

=30%

	increase in income	percentage
Beck	$23,790(61,000*39%)	39%
Bryant	$48,900($163,000*30%)	30%