You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton.Which one of the following choices correctly depicts (1)the relative use of fixed costs (as opposed to variable costs)for the two companies and (2)the percentage change in income caused by a change in sales?

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Choice A correctly depicts that Becker Corporation has a higher use of fixed costs compared to Newton Corporation, and that a change in sales will result in a higher percentage change in income due to the higher operating leverage factor of Becker. A higher operating leverage factor indicates that a larger proportion of the company's costs are fixed rather than variable. As a result, small changes in sales can cause a significant change in profit for a company with high operating leverage, which is reflected in the higher percentage change in income.

You Are Analyzing Becker Corporation and Newton Corporation and Have