Based on the income statements of the three following retail businesses, which company has the highest operating leverage?
| Alpha | Beta | Gama | |
| Revenue | 200000 | 200000 | 200000 |
| Variable Cost | -95000 | -155000 | -125000 |
| Contribution Margin | 105000 | 45000 | 75000 |
| Fixed Cost | -80000 | -20000 | -50000 |
| Net Income | 25000 | 25000 | 25000 |
A Alpha Company
- Beta Company
- Gamma Company
D. They all have same operating leverage
Answer : A Alpha Company has the highest operating leverage
First of al we will calculate operating Leverage for the three company as follow
Operating Leverage = Contribution Margin / Net income
| Alpha | Beta | Gama | |
| Revenue | 200000 | 200000 | 200000 |
| Variable Cost | -95000 | -155000 | -125000 |
| Contribution Margin (A) | 105000 | 45000 | 75000 |
| Fixed Cost | -80000 | -20000 | -50000 |
| Net Income (B) | 25000 | 25000 | 25000 |
| Contribution Margin / Net income (A) /(B) |
4.2 | 1.8 | 3 |
Alpha Company has the highest operating leverage = 4.2
