Question
Friendly Pie Inc., income statement for 2017 is as follows: FRIENDLY PIE, INC. Income Statement For the Year Ended December 31, 2017 Sales (160,000 units
Friendly Pie Inc., income statement for 2017 is as follows:
FRIENDLY PIE, INC.
Income Statement
For the Year Ended December 31, 2017
Sales (160,000 units at $50) . . . . . . . . $8,000,000
Less: Variable costs (160,000 units at $30) . . 4,800,000
Fixed costs . . . . . . . . . . . . . . . 1,600,000
Earnings before interest and taxes . . . . . . . . 1,600,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . 600,000
Earnings before taxes (EBT) . . .. . . . . . . . 1,000,000
Income tax expense (30%) . . . . . . . . . . .. 300,000
Earnings after taxes (EAT) . . . . . . . . . .. 700,000
Given this income statement, compute the following:
A. Degree of operating leverage.
B. Degree of financial leverage.
C. Degree of combined leverage.
D. Break even point in units and dollars.
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