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The Harding Company manufactures skates. The companys income statement for 20X1 is as follows: HARDING COMPANY Income Statement For the Year Ended December 31, 20X1
The Harding Company manufactures skates. The companys income statement for 20X1 is as follows: | ||||
HARDING COMPANY | ||||
Income Statement | ||||
For the Year Ended December 31, 20X1 | ||||
Sales (10,500 skates @ $60 each) | $630,000 | |||
Less: Variable costs (10,500 skates at $25) | 262,500 | |||
Fixed costs | 200,000 | |||
Earnings before interest and taxes (EBIT) | $167,500 | |||
Interest expense | 62,500 | |||
Earnings before taxes (EBT) | $105,000 | |||
Income tax expense (30%) | 31,500 | |||
Earnings after taxes (EAT) | $73,500 | |||
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 (number of skates). | ||||
Solution | ||||
Problem 5-11 | ||||
Instructions | ||||
Using the Income Statement (above) and the information (below), compute the degree of operating leverage, | ||||
degree of financial leverage, degree of combined leverage, and the break-even point in units. | ||||
Information: | ||||
Unit sales | 10,500 | |||
Selling price | $60 | |||
Variable cost per unit | $25 | |||
a. Degree of operating leverage | FORMULA | times | ||
b. Degree of financial leverage | FORMULA | times | ||
c. Degree of combined leverage | FORMULA | times | ||
d. Break-even point in units | FORMULA | skates | ||
Please include Excel formulas with solution. Thank you so much.
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