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Use the following information about Rat Race Home Security, Inc. to answer the questions: Average selling...

Use the following information about Rat Race Home Security, Inc. to answer the questions:

Average selling price per unit $305.

Variable cost per unit $184

Units sold 490

Fixed costs $8,722

Interest expense $12,378

Based on the data above, what is the degree of financial leverage of Rat Race Home Security, Inc.?

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Expert Solution

Answer:

What is the degree of financial leverage of Rat Race Home Security, Inc.?

Degree of financial leverage = $50,568 ÷ $38,190

                                         = 1.32 times

Notes:

Average selling price per unit = $305.

Units sold =490 units

Total sales = 490 units*$305

                   = $1, 49,450

Variable cost per unit = $184

Total Variable cost= 490 units*$184

                             =$90,160

Fixed costs = $8,722

Interest expense =$12,378

EBIT = Sales-(Variable cost+ Fixed Cost)

        = $1, 49,450-($90,160+$8,722)

        = $1, 49,450 – $98,882

        =$50,568

EBT = EBIT - Interest expense

        =$50,568 - $12,378

        =$38,190

jeff jeffy answered 7 months ago
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