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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.

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