Question:
Can you help me with the following problem:
The Harding company manufactures skates. The company's income statement for 2001 is as follows:
HARDING COMPANY
Income statement
For the Year Ended December 31, 2001
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 expenses (40%).............................. 36,000
__________
Earnings after taxes (EAT).................................. $54,000
a.) How do I compute the Degree of operating leverage?
b.) How do I compute the Degree of financial leverage?
c.) How do I compute the degree of combined leverage?
d.) How do I compute the Break-even point in units (number of skates)?