Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 5 - 1 0 ( Algo ) Degree of leverage [ LO 5 - 2 , 5 - 5 ] The Sterling Tire Company

Problem 5-10(Algo) Degree of leverage [LO5-2,5-5]
The Sterling Tire Companys income statement for 20X1 is as follows:
STERLING TIRE COMPANY
Income Statement
For the Year Ended December 31,20X1
Sales (37,000 tires at $94 each) $ 3,478,000
Variable costs (37,000 tires at $47)1,739,000
Fixed costs 570,000
Earnings before interest and taxes (EBIT) $ 1,169,000
Interest expense 58,500
Earnings before taxes (EBT) $ 1,110,500
Income tax expense (25%)277,625
Earnings after taxes (EAT) $ 832,875
Compute the degree of operating leverage.
Note: Round your answer to 2 decimal places.
Compute the degree of financial leverage.
Note: Round your answer to 2 decimal places.
Compute the degree of combined leverage.
Note: Round your answer to 2 decimal places.
Compute the break-even point in units.
Note: Round your answer to the nearest whole number.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey of Accounting

Authors: Paul D. Kimmel, Jerry J. Weygandt

1st edition

1119330025, 978-1119444244, 1119444241, 978-1119306474, 1119306477, 978-1119330028

More Books

Students also viewed these Accounting questions