Based on the income statements of the three following retail businesses, which company has the highest operating leverage? Alpha Company - Revenue $200,000 - Variable costs ($95,000) - Contribution margin $105,000-Fixed costs ($80,000) - Net income $25,000Beta Company-Revenue $200,000-Variable costs ($155,000) - Contribution margin $45,000-Fixed costs ($20,000) - Net income $25,000Gamma Company-Revenue $200,000-Variable costs ($125,000) - Contribution margin $75,000-Fixed costs ($50,000) - Net income $25,000

Question

Business

Lilly Guerra

19 July, 21:39

Based on the income statements of the three following retail businesses, which company has the highest operating leverage? Alpha Company - Revenue $200,000 - Variable costs ($95,000) - Contribution margin $105,000-Fixed costs ($80,000) - Net income $25,000Beta Company-Revenue $200,000-Variable costs ($155,000) - Contribution margin $45,000-Fixed costs ($20,000) - Net income $25,000Gamma Company-Revenue $200,000-Variable costs ($125,000) - Contribution margin $75,000-Fixed costs ($50,000) - Net income $25,000

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Answers (1)

Know the Answer?

Gunner Kane · Answer 1

The Alpha company has higher operating leverage than the beta company and the gamma company.

Explanation:

The formula to compute the operating leverage is shown below:

Operating leverage = Contribution : Net income

For Alpha company,

The operating leverage equals to

= $105,000 : $25,000

= 4.2

For Beta company,

The operating leverage equals to

= $45,000 : $25,000

= 1.8

For Gamma company,

The operating leverage equals to

= $75,000 : $25,000

= 3

Among these three companies, the Alpha company has higher operating leverage than the beta company and the gamma company