Problem - Varner Inc. and King Inc. have the following operating data:
Varner King
Sales $300,000 $600,000
Variable costs 120,000 360,000
Contribution margin 180,000 240,000
Fixed costs 120,000 80,000
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.
b. How much would income from operations increase for each company if the sales of each increased by 20%? If required, round answers to nearest whole number.