Question
In: Accounting
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 margin | 1,250,000 |
| Less: Fixed costs | 1,050,000 |
| Earnings before interest and taxes (EBIT) | 200,000 |
| Interest expense | 75,000 |
| 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.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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:...
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:...
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 (30,000 tires at $45 each) $ 1,350,000 Less:
Variable costs (30,000 tires at $20) 600,000 Contribution margin
750,000 Less: Fixed costs 600,000 Earnings before interest and
taxes (EBIT) 150,000 Interest expense 75,000 Earnings before taxes
(EBT) 75,000 Income tax expense (30%) 22,500 Earnings after taxes
(EAT) $ 52,500 Given this income statement, compute the following:
a. Degree of...
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.
Freeport Company's income statement for last year is as follows: Income Statement Sales $300,000 Less: Cost...
Freeport Company's income statement for last year is as
follows:
Income Statement
Sales
$300,000
Less: Cost of goods sold
200,000
Gross margin
100,000
Less: Operating expenses
60,000
Income before taxes
40,000
Less: Income taxes
16,000
Net income
$24,000
The beginning and ending balances for last year are available
for the following accounts:
Ending
balance
Beginning
balance
Accounts receivable
$32,000
$40,000
Inventory
60,000
50,000
Prepaid expenses
12,000
8,000
Accumulated depreciation
(40,000)
(30,000)
Accounts payable
30,000
45,000
Accrued liabilities
16,000
10,000
Income...
Income statement information for Blue Spruce Tire Repair Corporation for the year 2017 follows: General and...
Income statement information for Blue Spruce Tire Repair
Corporation for the year 2017 follows: General and administrative
expenses: Freight-in $14,000 Salaries and wages expense $37,500
Purchase discounts 11,000 Depreciation expense—building 29,600
Dividend revenue 22,000 Office supplies expense 9,600 Inventory
(beginning) 114,000 Inventory (ending) 139,000 Sales returns and
allowances 14,000 Loss—other (due to flood damage) 51,000 Service
expenses: Gain on the sale of equipment 6,000 Salaries and wages
68,000 Purchases 570,000 Depreciation expense—garage equipment
16,400 Sales revenue 900,000 Garage supplies expense...
Given is the Income Statement for the year ended December 31, 20XX, Statement of Retained Earnings for the year ended December 31, 20XX
Given is the Income Statement for the year ended December 31, 20XX, Statement of Retained Earnings for the year ended December 31, 20XX and Comparative Balance Sheets for 20XW and 20XX of Maris Corporation: Maris CorporationIncome StatementYear Ended December 31, 20XX Sales$3,800,000 Cost of goods sold2,250,000 Gross profits1,550,000 Selling and administrative expense540,000 Amortization expense200,000 Operating income810,000 Interest expense43,000 Earnings before taxes767,000 Taxes440,000 Earnings after taxes327,000 Preferred stock dividends30,000 Earnings available to common shareholders$297,000 Shares outstanding198,000 Earnings per share$1.50 Statement of...
Given is the Income Statement for the year ended December 31, 20XX, Statement of Retained Earnings...
Given is the Income Statement for the year ended December 31,
20XX, Statement of Retained Earnings for the year ended December
31, 20XX and Comparative Balance Sheets for 20XW and 20XX of Maris
Corporation:
Maris Corporation
Income Statement
Year Ended December 31, 20XX
Sales
$3,400,000
Cost of goods sold
1,950,000
Gross profits
1,450,000
Selling and administrative expense
600,000
Amortization expense
200,000
Operating income
650,000
Interest expense
50,000
Earnings before taxes
600,000
Taxes
400,000
Earnings after taxes...
Given is the Income Statement for the year ended December 31, 20XX, Statement of Retained Earnings...
Given is the Income Statement for the year ended December 31,
20XX, Statement of Retained Earnings for the year ended December
31, 20XX and Comparative Balance Sheets for 20XW and 20XX of Maris
Corporation:
Maris Corporation
Income Statement
Year Ended December 31, 20XX
Sales
$5,400,000
Cost of goods sold
3,650,000
Gross profits
1,750,000
Selling and administrative expense
700,000
Amortization expense
220,000
Operating income
830,000
Interest expense
59,000
Earnings before taxes
771,000
Taxes
460,000
Earnings after taxes...
Financial Statements: Develop an Income Statement for 20XX, Cash Flow Statement for 20XX, and Balance Sheet...
Financial Statements: Develop an Income Statement for 20XX, Cash
Flow Statement for 20XX,
and Balance Sheet as of the end of 20XX based on the data provided
below for year 20XX. All
sales are collected when the sale is made and all expenses are paid
when the expense is
incurred. Explain the purpose of each financial statement.
a. Income Statement Data for 20XX:
Units produced and sold = 420
Sales ($80 per unit selling price) = $33600
...
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