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Compute the degree of operating leverage

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Reference no: EM132846161

Question - The Harding Company manufactures skates. The company's income statement for 20X1 is as follows:

HARDING COMPANY Income Statement For the Year Ended December 31, 20X1

Sales (11,000 skates @ $70 each) $770,000

Variable costs (11,000 skates at $30) 330,000

Fixed costs 250,000

Earnings before interest and taxes (EBIT) $190,000

Interest expense 65,000

Earnings before taxes (EBT) $125,000

Income tax expense (20%) 25,000

Earnings after taxes (EAT) $100,000

Required -

a. Compute the degree of operating leverage.

b. Compute the degree of financial leverage.

c. Compute the degree of combined leverage.

d. Compute the break-even point in units (number of skates).

Reference no: EM132846161

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