The Sterling Tire Companys income statement for 20XX is as follows:

STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX
Sales (55,000 tires at $70 each)	$	3,850,000
Less: Variable costs (55,000 tires at $50)		2,750,000
Contribution margin		1,100,000
Less: Fixed costs		900,000
Earnings before interest and taxes (EBIT)		200,000
Interest expense		75,000
Earnings before taxes (EBT)		125,000
Income tax expense (35%)		43,750
Earnings after taxes (EAT)	$	81,250

Given this income statement, compute the following:

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

DOL X

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

DFL X

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

DCL 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?

multiple choice

• DFL

• DOL

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

Break-even point tires

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

Break-even point tires