Question
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Haunted Forest, Inc.is selling fog machines. Use the following information about Haunted Forest, Inc. to answer...
Haunted Forest, Inc.is selling fog machines. Use the following information about Haunted Forest, Inc. to answer the following questions. Average selling price per unit $344. Variable cost per unit $191 Units sold 349 Fixed costs $17,627 Interest expense $4,831 Based on the data above, what is the degree of total (combined) leverage of Haunted Forest, Inc.?
Round the answer to two decimals
Solutions
Expert Solution
| Degree of combined leverage | = | Contribution Margin | / | EBT | ||
| = | $ 53,397 | / | $ 30,939 | |||
| = | 1.73 | |||||
| Working: | ||||||
| EBIT means Earning Before Interest and Taxes. | ||||||
| Contribution Format Income Statement: | ||||||
| Per Unit | Total | |||||
| Sales | $ 344 | $ 1,20,056 | ||||
| Variable cost | $ 191 | $ 66,659 | ||||
| Contribution margin | $ 153 | $ 53,397 | ||||
| Fixed Cost | $ 17,627 | |||||
| EBIT | $ 35,770 | |||||
| Interest | $ 4,831 | |||||
| EBT | $ 30,939 | |||||
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