The following information is for Gable, Inc. and Harlowe, Inc. for the recent year. Based on the above data, which company has a higher operating leverage?
A) Gable, Inc.
B) Harlowe, Inc.
C) Operating leverage is the same for both companies
D) Cannot be determined

Question

The following information is for Gable, Inc. and Harlowe, Inc. for the recent year.  Based on the above data, which company has a higher operating leverage?
A) Gable, Inc. 
B) Harlowe, Inc. 
C) Operating leverage is the same for both companies 
D) Cannot be determined

Quizplus · Accepted Answer

Magnitude of operating leverage = Contribution margin ÷ Net income
Gable: Magnitude of operating leverage = $400,000 ÷ $200,000 = 2.0
Harlowe: Magnitude of operating leverage = $600,000 ÷ $200,000 = 3.0

The Following Information Is for Gable, Inc