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The Sterling Tire Companys income statement for 20X1 is as follows: STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 20X1 Sales (45,000
The Sterling Tire Companys income statement for 20X1 is as follows:
STERLING TIRE COMPANY | ||
Income Statement | ||
For the Year Ended December 31, 20X1 | ||
Sales (45,000 tires at $110 each) | $ | 4,950,000 |
Variable costs (45,000 tires at $55) | 2,475,000 | |
Fixed costs | 650,000 | |
Earnings before interest and taxes (EBIT) | $ | 1,825,000 |
Interest expense | 62,500 | |
Earnings before taxes (EBT) | $ | 1,762,500 |
Income tax expense (20%) | 352,500 | |
Earnings after taxes (EAT) | $ | 1,410,000 |
a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)
b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)
c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)
d. Compute the break-even point in units. (Round your answer to the nearest whole number.)
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