Based on the Income Statements of the Three Following Retail

question 83

Multiple Choice

Based on the income statements of the three following retail businesses,which company has the highest operating leverage? $\begin{array}{c}\begin{array}{l}\\\\\text {Revenue}\\ \text {Variable costs}\\\text { Contribution margin }\\\text {Fixed costs}\\ \text {Net income}\\\end{array} \begin{array}{lll}\text { Alpha}\\\text { Company}\\200,000 \\(95,000) \\\$ 105,000 \\(80,000) \\\$ 25,000\end{array}\begin{array}{c}\\\text { Beta Company } \\\$ 200,000 \\ (155,000) \\\$ 45,000 \\ (20,000) \\ \$ 25,000\end{array}\begin{array}{cc}\text { Gamma}\\\text { Company}\\\$ 200,000 \\ (125,000) \\ \$ 75,000 \\ (50,000) \\\$ 25,000\end{array}\end{array}$

• A) Alpha Company
• B) Beta Company
• C) Gamma Company
• D) They all have same operating leverage

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Definitions:

Income

The monetary payment received for goods or services, or from other sources, as rents or investments.

Interest Rate

The percentage of a sum of money charged for its use, which reflects the cost of borrowing or the return on savings.

Utility Function

A mathematical representation that ranks an individual's preferences over a set of goods and services, aiming to measure satisfaction or happiness.

Consumption

Households' utilization of goods and services.