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Compute the degree of operating leverage

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The Sterling Tire Company's income statement for 20X1 is as follows: STERLING TIRE COMPANYIncome Statement For the Year Ended December 31, 20X1 Sales (33,000 tires at $86 each) $2,838,000 Variable costs (33,000 tires at $43) 1,419,000 Fixed costs 530,000 Earnings before interest and taxes (EBIT) $889,000 Interest expense 56,500 Earnings before taxes (EBT) $832,500 Income tax expense (20%) 166,500 Earnings after taxes (EAT) $666,000

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

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

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

d. Compute the break-even point in units. (Round your answer to the nearest whole number.)

Reference no: EM132785618

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