interpret Company A and Company B's results below in terms of the factors that impact Cost Volume Profit Analysis (CVP). Why does Company B have the greater degree of operating leverage? As a manager, why is operating leverage an important concept? Company A Company B Sales (10,000 units times $26) $260,000 Sales (10,000 units times $32) $320,000 Less Variable expenses (10,000 units $16) 160,000 Less Variable expenses (10,000 units times $20) 200,000 Contribution margin (a) 100,000 Contribution margin (a) 120,000 Less Fixed expenses 80,000 Less Fixed expenses 100,000 Net operating income (b) 20,000 Net operating income (b) 20,000 Degree of operating leverage (a divided by b) 5.0 Degree of operating leverage (a divided by b) 6.0
interpret Company A and Company B's results below in terms of the factors that impact Cost Volume Profit Analysis (CVP). Why does Company B have the greater degree of operating leverage? As a manager, why is operating leverage an important concept? Company A Company B Sales (10,000 units times $26) $260,000 Sales (10,000 units times $32) $320,000 Less Variable expenses (10,000 units $16) 160,000 Less Variable expenses (10,000 units times $20) 200,000 Contribution margin (a) 100,000 Contribution margin (a) 120,000 Less Fixed expenses 80,000 Less Fixed expenses 100,000 Net operating income (b) 20,000 Net operating income (b) 20,000 Degree of operating leverage (a divided by b) 5.0 Degree of operating leverage (a divided by b) 6.0
Chapter6: Systems Of Equations And Inequalities
Section: Chapter Questions
Problem 21T: A manufacturer produces two models of television stands. The table at the left shows the times (in...
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interpret Company A and Company B's results below in terms of the factors that impact Cost Volume Profit Analysis (CVP). Why does Company B have the greater degree of operating leverage? As a manager, why is operating leverage an important concept?
Company A | Company B | ||||
Sales (10,000 units times $26) | $260,000 | Sales (10,000 units times $32) | $320,000 | ||
Less Variable expenses (10,000 units $16) | 160,000 | Less Variable expenses (10,000 units times $20) | 200,000 | ||
Contribution margin (a) | 100,000 | Contribution margin (a) | 120,000 | ||
Less Fixed expenses | 80,000 | Less Fixed expenses | 100,000 | ||
Net operating income (b) | 20,000 | Net operating income (b) | 20,000 | ||
Degree of operating leverage (a divided by b) | 5.0 | Degree of operating leverage (a divided by b) | 6.0 |
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