Problem: The Douglas Company manufactures ladders. The company's income statement for 2001 is as follows:
| Douglas Company Income Statement for Year Ended December 31, 2001. |
| Sales (10,000 ladders @ $50 each) |
$500,000 |
| Less: Variable costs (10,000 ladders 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, calculate the given:
1) Degree of operating leverage.
2) Degree of combined leverage.
3) Break-even point in units (number of ladders).