The CVP income statements shown below are available for Vericelli Company and Boone Company.
$$
\begin{array}{|c|c|c|}
\hline & \text { Vericelli Co. } & \text { Boone Co. } \\
\hline \text { Sales revenue } & \$ 600,000 & \$ 600,000 \\
\hline \text { Variable costs } & 320,000 & 120,000 \\
\hline \begin{array}{l}
\text { Contribution margin } \\
\text { Fixed costs }
\end{array} & \begin{array}{l}
280,000 \\
180,000 \\
\end{array} & \begin{array}{r}
480,000 \\
380,000 \\
\end{array} \\
\hline \text { Net income } & \$ 100,000 & \$ 100,000 \\
\hline
\end{array}
$$
Instructions
(a) Compute the degree of operating leverage for each company and interpret your results.
(b) Assuming that sales revenue increases by $10 \%$, prepare a variable costing income statement for each company.
(c) Discuss how the cost structure of these two companies affects their operating leverage and profitability.