Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (30,000 tires at

image text in transcribed

image text in transcribed

image text in transcribed

The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (30,000 tires at $45 each) Less: Variable costs (30,000 tires at $20) $ 1,350,000 600,000 Contribution margin Less: Fixed costs 750,000 600,000 Earnings before interest and taxes (EBIT) Interest expense 150,000 75,000 Earnings before taxes (EBT) Income tax expense (30%) 75,000 22,500 Earnings after taxes (EAT) $ 52,500 Given this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL Given this income statement, compute the following: a. Degree of operating leverage (Round the final answer to 2 decimal places.) DOL b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DFL 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.) ERIT EBT $ c-3. Does financial or operating leverage have the greater impact? c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent inc (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 O DFL 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Knowledge Auditing Foundations For Knowledge Management Implementation

Authors: Patrick Lambe

1st Edition

0262545039, 978-0262545037

More Books

Students also viewed these Accounting questions