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The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year en...

The Sterling Tire Company's income statement for 20XX is as follows: 

STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX
 Sales (50,000 tires at $65 each) $3,250,000
Less: Variable costs (50,000 tires at $40)2,000,000
 Contribution margin1,250,000
  Less: Fixed costs1,050,000
 Earnings before interest and taxes (EBIT)200,000
Interest expense75,000
Earnings before taxes (EBT) 125,000
Income tax expense (35%)43,750
Earnings after taxes (EAT)$81,250


Given this income statement, compute the following 

a. Degree of operating leverage. 

b. Degree of financial leverage. 

c-1. Degree of combined leverage. 

c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales volume. 

c-3. Does financial or operating leverage have the greater impact?

d. Break-even point in units. 

e. Break-even point considering the interest expense as a fixed cost. 

The Sterling Tire Companys income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended Decembc-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales vo


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ekkarill92 answered 2 years ago
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