eBook Print Item Vaner Inc. and King Inc. have the following operating data: Var
ID: 2586130 • Letter: E
Question
eBook Print Item Vaner Inc. and King Inc. have the following operating data: Varner Inc $238,800 95,800 $143,000 78,000 Sales $522,000 313,200 $208,800 34,800 $65,000$174,000 Variable costs Fixed costs Income from operations 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 Dollars Percentage Varner Inc. King Inc. c. The difference in the increasesof income from operations is due to the difference in the operating leverages. Varner Inc.'s higher leverage means that its fixed costs are a largerpercentage of contribution margin than are King Inc.'s operating Previous Next 1:06 PM p de 12/4/2017 ^Explanation / Answer
Req A: Degree of Operating Leverage VARNER INC KING INC Sales revenue 238,800 522,000 Less: Variable Cost 95,800 313,200 Contribution 143,000 208,800 Less: Fixed Cost 78,000 34,800 Net operating Income 65,000 174,000 Degree of Operating leverage 2.20 1.20 (Contribution margin/ Net operating income) (143,000/65,000) (208,800/174,000) Operating Leverage VARNER INC 2.20 KING INC 1.20 Req B: VARNER INC KING INC Degree Operating Leverage 2.2 1.2 Sale revenue increase by 15% 15% 15% Net Oprating income will increase by 33% 18% (% sales increase * Degree of Operating Leverage) (15%*2.2) (1.2*15%) Current Net Operating Income 65,000 174,000 Increase in Net Operating Income in $ 21450 31320 DOLLARs PERCENTAGE VARNER INC 21,450 33% KNG INC 31320 18% ReqC: The difference in Increase of operations is due to the difference in the operating leverage. Varner Inc higher Operating Leverage means that its fixed cost are a larger percentage of contribution margin than King INC.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.