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
Earnings before interest and taxes (EBIT) 150,000
Interest expense 60,000
Earnings before taxes (EBT) 90,000
Income tax expense (40%) 36,000
Earnings 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).