CengageNOWw2 | Oniline teaching and leaming resource from Cengage Leaming-Intern

Question

CengageNOWw2 | Oniline teaching and leaming resource from Cengage Leaming-Internet Explorer Operating Leverage Varner Inc. and King Inc. have the following operating data: Varner Inc. King Inc. Sales Variable costs Contribution margin Fixed costs Income from operations $420,200 $1,188,000 712,800 475,200 277,200 $198,000 168,600 $251,600 177,600 $74,000 Compa s 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 8 9

Explanation / Answer

OPERATING LEVERAGE IS THE CALCULATED BY DIVIDING CONTRIBUTION MARGIN WITH NET OPERATING INCOME.

OL FOR VARNER = 251600 / 74000 = 3.4. OL FOR KING = 475200 / 198000 = 2.4

INCREASING SALES BY 10% THEN

VARNER = 462220 - 185460 = 276760 - 177600 = 99160 NET OPERATING INCOME INCREASED BY 34%

KING = 1306800 - 784080 = 522720 - 277200 = 245520 NET OPERATING INCOME INCREASED BY 24%

DIFFERENCE IN THE LEVEL OF INCOME IS DUE TO DIFFERENCE IN THE OL. VARNER INC 3.4 OL MEANS THAT IT FC ARE 70.59% PERCENT OF CONTRIBUTION.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.