Example Exercise 6 Operating Leverage Jones, Inc. Wilson, Inc. The relationship of a company’s contribution margin to income from operations is measured by operating leverage which is computed by dividing [CLICK] contribution margin by income from operations. Assume the given information for Jones and Wilson [CLICK] companies. Notice that they have the same [CLICK] sales, variable costs and contribution margin. However, Jones has larger fixed costs than Wilson and thus [CLICK] a higher operating leverage. Jones, Inc. Wilson, Inc.

2 Example Exercise 6 6 Now we can determine the operating leverage for Tucker Company by dividing [CLICK] the contribution margin of $250,000 by the income of operations of $62,500 to get operating leverage of 4.0.

Example Exercise 6 6 6  For Practice: PE 6A, PE 6B 6 6A, 6B Refer to Practice Exercises PE 6A and PE 6B to practice calculating operating leverage. 6A, 6B  For Practice: PE 6A, PE 6B