In: Finance
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.?
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