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Compute the degree of combined leverage

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The Harding Company manufactures skates. The company's income statement for 20X1 is as follows:

HARDING COMPANY

Income Statement

For the Year Ended December 31, 20X1

Sales (11,000 skates @ $70 each)$770,000

Variable costs (11,000 skates at $30) 330,000

Fixed costs 250,000

Earnings before interest and taxes (EBIT)$190,000

Interest expense 65,000

Earnings before taxes (EBT)$125,000

Income tax expense (20%) 25,000

Earnings after taxes (EAT)$100,000

Problem a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

Problem b. Compute the degree of financial leverage.(Round your answer to 2 decimal places.)

Problem c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

Problem d. Compute the break-even point in units (number of skates).

Reference no: EM132836789

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