Question: The Harmon Company manufactures skates. The company's income statement for 2004 is as follows:
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HAR M ON COMPANY
Income Statement
For the Year Ended December 31, 2004
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Sales (30,000 skates 0 $25) .................................................
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$750,000
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Less: Variable costs (30,000 skates at $7) .........................
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210,000
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Fixed costs ...............................................................
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270,000
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Earnings before interest and taxes (EB IT) .............................
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270,000
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Interest expense ..................................................................
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170,000
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Earnings before taxes (EBT) .................................................
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100,000
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Income tax expense (35%) ...................................................
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35,000
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Earnings after taxes (EAT).....................................................
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$ 65,000
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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.