Operating Leverage

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

	Varner Inc.		King Inc.
Sales	$176,400		$468,000
Variable costs	70,800		280,800
Contribution margin	$105,600		$187,200
Fixed costs	61,600		70,200
Income from operations	$44,000		$117,000

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

Varner Inc. _________
King Inc. _________

b. How much would income from operations increase for each company if the sales of each increased by 10%? If required, round answers to nearest whole number.

	Dollars	Percentage
Varner Inc.	$ _______		% _____
King Inc.	$ _______		% _____

c. The difference in the (Increase/Decrease) of income from operations is due to the difference in the operating leverages. Varner Inc.'s (Higher/Lower) operating leverage means that its fixed costs are a (Larger/Smaller) percentage of contribution margin than are King Inc.'s.