Problem:
The Harding Company manufactures skates. The company’s income statement for 2010 is as follows:
HARDING COMPANY
income statement
For the year Ended December 31,2010
Sales (10,000 skates $50 each) 500,000
Less: Variable costs(10,000 skates at $20) 200,000
Fixed costs 150,000
Earning Before interest and taxes 150,000
Internet expense 60,000
Earning before taxes (EBT) 90,000
Income tax expense(40%) 36,000
Earning after taxes (EAT) 54,000
Given this income statement, compute the following:
a. Degree of operating leverage.
b. Degree of financial leverage
c. Degree of combined leverage.
d. Break-even point in units (number of skates).