The Sterling Tire Company's income statement for 20XX is as follows:

STERLING TIRE COMPANY

Income Statement

Year ended December 31, 20XXSales (30,000 tires at $45 each)$1,350,000Less: Variable costs (30,000 tires at $20)600,000Contribution margin750,000Less: Fixed costs600,000Earnings before interest and taxes (EBIT)150,000Interest expense50,000Earnings before taxes (EBT)100,000Income tax expense (35%)35,000Earnings after taxes (EAT)$65,000

Given this income statement, compute the following:

a.Degree of operating leverage.(Round the final answer to 2 decimal places.)

DOLX

b.Degree of financial leverage.(Round the final answer to 2 decimal places.)

DFLX

c-1.Degree of combined leverage.(Do not round the intermediate calculations. Round the final answer to 2 decimal places.)

DCLX

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?

multiple choice

• DOL
• DFL

d.Break-even point in units.(Round the final answer to the nearest whole number.)

Break-even pointtires

e.Break-even point considering the interest expense as a fixed cost.

Break-even pointtires