Break-even, Financial and Operating Leverages

Johnson Products, Inc.
Income Statement
For the Year Ended December 31, 2018
Sales (40,000 bags at $50 each) ..................................	$2,000,000
Less: Variable costs (40,000 bags at $25)................	1,000,000
Fixed costs..............................................................	600,000
Earnings before interest and taxes ..............................	400,000
Interest expense ...........................................................	120,000
Earnings before taxes .................................................	280,000
Income tax expense (20%) ..........................................	56,000
Net income ..................................................................	$ 224,000

Based on the information above, calculate (show all calculations and responses in good form):

1. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning?

2. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?

3. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?