Question

In: Finance

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows: HARDING COMPANY...

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows: HARDING COMPANY Income Statement For the Year Ended December 31, 20X1 Sales (11,100 skates @ $72 each) $ 799,200 Variable costs (11,100 skates at $31) 344,100 Fixed costs 260,000 Earnings before interest and taxes (EBIT) $ 195,100 Interest expense 65,500 Earnings before taxes (EBT) $ 129,600 Income tax expense (30%) 38,880 Earnings after taxes (EAT) $ 90,720

a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)

c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

d. Compute the break-even point in units (number of skates). (Round your answer to the nearest whole number.)

Solutions

Expert Solution

Degree of Operating leverage = (Sales – variable costs)/EBIT

= (799200-344100)/195100

= 2.3326 times

i.e. 2.33 times

Degree of financial leverage = EBIT/EBT

= 195,100/129600

= 1.51 times

c. Degree of combined leverage = DOL*DFL

= 2.33*1.51

= 3.52 times

d. Break even point in units = Fixed costs/(Selling price per unit – variable cost per unit)

= 260,000/(72-31)

= 6341.46 skates

i.e. 6341 skates

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The Sterling Tire Company's income statement for 20X1 is as follows STERLING TIRE COMPANY Income Statement...
The Sterling Tire Company's income statement for 20X1 is as follows: STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 20X1 Sales (23,000 tires at $66 each) $1,518,000Variable costs (23,000 tires at $33) 759,000Fixed costs 430,000Earnings before interest and taxes (EBIT) $ 329,000Interest expense 51,500Earnings before taxes (EBT)  $277,500Income tax expense (30%) 83,250Earnings after taxes (EAT) $ 194,250a. Compute the degree of operating leverage.b. Compute the degree of financial leverage.c. Compute the degree of combined leverage.d. Compute the break-even point in units.
The Sterling Tire Company’s income statement for 20XX is as follows:    STERLING TIRE COMPANY Income Statement...
The Sterling Tire Company’s income statement for 20XX is as follows:    STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX   Sales (20,000 tires at $60 each) $ 1,200,000       Less: Variable costs (20,000 tires at $30) 600,000   Contribution margin 600,000       Less: Fixed costs 400,000   Earnings before interest and taxes (EBIT) 200,000   Interest expense 50,000   Earnings before taxes (EBT) 150,000   Income tax expense (34%) 51,000      Earnings after taxes (EAT) $ 99,000 Given this income statement, compute the following:...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 900,000 Variable expenses 300,000 Contribution margin 600,000 Fixed expenses 495,000 Net operating income $ 105,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 900,000 Variable expenses 400,000 Contribution margin 500,000 Fixed expenses 470,000 Net operating income $ 30,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded...
The Sterling Tire Company’s income statement for 20XX is as follows:    STERLING TIRE COMPANY Income Statement...
The Sterling Tire Company’s income statement for 20XX is as follows:    STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX   Sales (35,000 tires at $50 each) $ 1,750,000       Less: Variable costs (35,000 tires at $20) 700,000   Contribution margin 1,050,000       Less: Fixed costs 750,000   Earnings before interest and taxes (EBIT) 300,000   Interest expense 75,000   Earnings before taxes (EBT) 225,000   Income tax expense (30%) 67,500      Earnings after taxes (EAT) $ 157,500 Given this income statement, compute the following:...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales   $   900,000 Variable expenses      408,000 Contribution margin      492,000 Fixed expenses      465,000 Net operating income   $   27,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 800,000 Variable expenses 308,000 Contribution margin 492,000 Fixed expenses 465,000 Net operating income $ 27,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 850,000 Variable expenses 308,000 Contribution margin 542,000 Fixed expenses 490,000 Net operating income $ 52,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 900,000 Variable expenses 408,000 Contribution margin 492,000 Fixed expenses 465,000 Net operating income $ 27,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For...
Vulcan Company’s contribution format income statement for June is as follows: Vulcan Company Income Statement For the Month Ended June 30 Sales $ 750,000 Variable expenses 336,000 Contribution margin 414,000 Fixed expenses 378,000 Net operating income $ 36,000 Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: The company is divided into two sales territories—Northern and Southern. The Northern territory recorded...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT