The Sosa Company produces baseball gloves. The company's income statement for 2004 is as follows:
SOSA COMPANY
Income Statement
For the Year Ended December 31, 2004
Sales (20,000 gloves at $60 each) $1,200,000
Less: Variable costs (20,000 gloves at $20) 400,000
Fixed costs 600,000
Earnings before interest and taxes (EBIT) 200,000
Interest expense 80,000
Earnings before taxes (EBT) 120,000
Income tax expense (30%) 36,000
Earnings after taxes (EAT) $ 84,000
Given this income statement, compute the following:
1. Degree of operating leverage.
2. Degree of financial leverage.
3. Degree of combined leverage.