Question: Varner Inc. and King Inc. have the following operating data: Varner Inc. King Inc. Sales $260,500 $800,000 Variable costs 104,500 480,000 Contribution margin $156,000 $320,000
Varner Inc. and King Inc. have the following operating data:
| Varner Inc. | King Inc. | |||
| Sales | $260,500 | $800,000 | ||
| Variable costs | 104,500 | 480,000 | ||
| Contribution margin | $156,000 | $320,000 | ||
| Fixed costs | 96,000 | 160,000 | ||
| Income from operations | $60,000 | $160,000 | ||
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 15%? If required, round answers to nearest whole number.
| Dollars | Percentage | ||
| Varner Inc. | $ | % | |
| King Inc. | $ | % | |
c. The difference in the of income from operations is due to the difference in the operating leverages. Varner Inc.'s operating leverage means that its fixed costs are a percentage of contribution margin than are King Inc.'s.
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