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 (11,200 skates @ $74 each) $ 828,800 Less: Variable costs (11,200 skates at $32) 358,400 Fixed costs 270,000 Earnings before interest and taxes (EBIT) 200,400 Interest expense 66,000 Earnings before taxes (EBT) 134,400 Income tax expense (40%) 53,760 Earnings after taxes (EAT) $ 80,640
(a) Compute the degree of operating leverage. (Enter only numeric value rounded to 2 decimal places.)
Degree of operating leverage
(b) Compute the degree of financial leverage. (Enter only numeric value rounded to 2 decimal places.)
Degree of financial leverage
(c) Compute the degree of combined leverage. (Enter only numeric value rounded to 2 decimal places.)
Degree of combined leverage
(d) Compute the break-even point in units (number of skates). (Round your answer to the nearest whole number.)
Break-even point skates
| 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 (11,200 skates @ $74 each) | $ | 828,800 |
| Less: Variable costs (11,200 skates at $32) | 358,400 | |
| Fixed costs | 270,000 | |
| Earnings before interest and taxes (EBIT) | 200,400 | |
| Interest expense | 66,000 | |
| Earnings before taxes (EBT) | 134,400 | |
| Income tax expense (40%) | 53,760 | |
| Earnings after taxes (EAT) | $ | 80,640 |
| (a) | Compute the degree of operating leverage. (Enter only numeric value rounded to 2 decimal places.) |
| Degree of operating leverage |
| (b) | Compute the degree of financial leverage. (Enter only numeric value rounded to 2 decimal places.) |
| Degree of financial leverage |
| (c) | Compute the degree of combined leverage. (Enter only numeric value rounded to 2 decimal places.) |
| Degree of combined leverage |
| (d) | Compute the break-even point in units (number of skates). (Round your answer to the nearest whole number.) |
| Break-even point | skates |
Related questions
| Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $29 a box. The fixed costs of this operation are $132,000, while the variable cost per box is $17. |
| (a) | What is the break-even point in boxes? |
| Break-even point | boxes |
| (b) | Calculate the profit or loss on 14,000 boxes and on 29,500 boxes. (Input all amounts as positive values. Omit the "$" sign in your response.) |
| Boxes | Profit/Loss | Amount |
| 14,000 | (Click to select)ProfitLoss | $ |
| 29,500 | (Click to select)LossProfit | $ |
| (c) | What is the degree of operating leverage at 13,000 boxes and at 29,500 boxes? (Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of operating leverage | ||
| 13,000 | |||
| 29,500 | |||
| (d) | If the firm has an annual interest expense of $10,700, calculate the degree of financial leverage at both 13,000 and 29,500 boxes.(Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of financial leverage | ||
| 13,000 | |||
| 29,500 | |||
| (e) | What is the degree of combined leverage at both sales levels? (Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of combined leverage |
| 13,000 | |
| 29,500 |
| Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $29 a box. The fixed costs of this operation are $132,000, while the variable cost per box is $17. |
| (a) | What is the break-even point in boxes? |
| Break-even point | boxes |
| (b) | Calculate the profit or loss on 14,000 boxes and on 29,500 boxes. (Input all amounts as positive values. Omit the "$" sign in your response.) |
| Boxes | Profit/Loss | Amount |
| 14,000 | (Click to select)LossProfit | $ |
| 29,500 | (Click to select)LossProfit | $ |
| (c) | What is the degree of operating leverage at 13,000 boxes and at 29,500 boxes? (Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of operating leverage | ||
| 13,000 | |||
| 29,500 | |||
| (d) | If the firm has an annual interest expense of $10,700, calculate the degree of financial leverage at both 13,000 and 29,500 boxes.(Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of financial leverage | ||
| 13,000 | |||
| 29,500 | |||
| (e) | What is the degree of combined leverage at both sales levels? (Enter only numeric value rounded to 2 decimal places.) |
| Boxes | Degree of combined leverage |
| 13,000 | |
| 29,500 |
