1) The Sterling Tire Companys income statement for 20X1 is as follows:

STERLING TIRE COMPANY

Income Statement For the Year Ended December 31, 20X1

Sales (44,000 tires at $108 each) $ 4,752,000

Variable costs (44,000 tires at $54) 2,376,000

Fixed costs 640,000

Earnings before interest and taxes (EBIT) $ 1,736,000

Interest expense 62,000

Earnings before taxes (EBT) $ 1,674,000

Income tax expense (30%) 502,200

Earnings after taxes (EAT) $ 1,171,800

a. 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