How much would income from operation increase for company

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Reference no: EM131933158

Problem

Operating Leverage

Varner Inc. and King Inc. have the following operating data:

	Varner Inc.	King Inc.
Sales	$250,500	$600,000
Variable costs	100,500	360,000
Contribution margin	$150,000	$240,000
Fixed costs	75,000	40,000
Income from operations	$75,000	$200,000

a. Compute the operating leverage for Varner Inc. and King Inc. If required, round to one decimal place.

b. How much would income from operations increase for each company if the sales of each increased by 15%? If required, round answers to nearest whole number.

c. The difference in the increases of income from operations is due to the difference in the operating leverages. Varner Inc.'s higher operating leverage means that its fixed costs are a larger percentage of contribution margin than are King Inc.'s.

Reference no: EM131933158

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