Alor Fastener Bhd(AFB)makes a patented marine bulkhead latch that wholesales for RM6.00. Each latch has a variable cost of RM3.50. Fixed operating costs are RM50,000 per year. The firm pays RM13,000 interest and preferred dividend of RM7,000 per year. At this point the firm is selling 30,000 latches per year and is taxed at a rate of 40%.
a) Calculate AFB operating breakeven point.
b) On the basis of the firm's current sales of 30,000 units per year and its interest and preferred dividend costs, calculate its EBIT and earnings available for common stock.
c) Calculate the firm's degree of operating leverage (DOL).
d) Calculate the firm's degree of financial leverage (DFL).
e) Calculate the firm's degree of total leverage (DTL).
f) AFB has entered into a contract to produce and sell an additional 15,000 latches in the coming year. Use the DOL, DFL and DTL to predict and calculate the changes in EBIT and earnings for common stock.