Reference no: EM132660519
Break-even, Financial and Operating Leverages
Johnson Products, Inc.Income StatementFor the Year Ended December 31, 2018
Sales (40,000 bags at $50 each) .................................. $2,000,000
Less: Variable costs (40,000 bags at $25)................ 1,000,000
Fixed costs.............................................................. 600,000
Earnings before interest and taxes .............................. 400,000
Interest expense ........................................................... 120,000
Earnings before taxes ................................................. 280,000
Income tax expense (20%) .......................................... 56,000
Net income .................................................................. $ 224,000
Based on the information above, calculate (show all calculations and responses in good form):
Question a. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning?
Question b. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?
Question c. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?
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