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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 $331. Variable cost per unit $188 Units sold 488 Fixed costs $5,750 Interest expense $16,184 Based on the data above, what is the degree of financial leverage of Rat Race Home Security, Inc.?

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Expert Solution

Degree of financing leverage = EBIT / EBT
= $ 64,034 / $ 47,850
=           1.34
Working:
EBIT means Earning Before Interest and Taxes.
Contribution Format Income Statement:
Per Unit Total
Sales $        331 $       1,61,528
Variable cost $        188 $           91,744
Contribution margin $        143 $           69,784
Fixed Cost $             5,750
EBIT $           64,034
Interest $           16,184
EBT $           47,850

jeff jeffy answered 3 months ago
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