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The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (20,000 tires at
The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (20,000 tires at $60 each) Less: Variable costs (20,000 tires at $30) $ 1,200,000 600,000 Contribution margin Less: Fixed costs 600,000 400,000 Earnings before interest and taxes (EBIT) Interest expense 200,000 50,000 Earnings before taxes (EBT) Income tax expense (348) 150,000 51,000 Earnings after taxes (EAT) $ 99,000 Given this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL 3.00 X b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DFL 1.33 X C-1. Degree of combined leverage. (Do not round the intermediate calculations. Round the final answer to 2 decimal places.) DFL 1.33 X C-1. Degree of combined leverage. (Do not round the intermediate calculations. Round the final answer to 2 decimal places.) DCL 4.00 X C-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales volume. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) EBIT EBT c-3. Does financial or operating leverage have the greater impact? DOL DFL d. Break-even point in units. (Round the final answer to the nearest whole number.) Break-even point 13333 tires e. Break-even point considering the interest expense as a fixed cost. Break-even point tires
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