Purchase Solution

Degree of operating leverage :sample question

Not what you're looking for?

Ask Custom Question

2.The Sterling Tire Company income statement for 2006 is as follows:
Sterling Tire Company
Income Statement
For the Year Ended December 31, 2006
Sales (20,000 tires at $60 each) $1,200,000
Less: Variable costs (20,000 tires at $30) 600,000
Fixed costs 400,000

Earnings before interest and taxes (EBIT) 200,000
Interest expense 50,000

Earnings before taxes (EBT) 150,000
Income tax expense (40%) 60,000
Earnings after taxes (EAT) $ 90,000

Given this income statement, compute the following:

1.Degree of operating leverage.
2.Degree of financial leverage.
3.Degree of combined leverage.
4.Break-even point in units.

Purchase this Solution

Solution Summary

Response provides steps to compute the Degree of operating leverage.

Solution Preview

The Sterling Tire Company income statement for 2006 is as follows:
Sterling Tire Company
Income Statement
For the Year Ended December 31, 2006
Sales (20,000 tires at $60 each) $1,200,000
Less: Variable costs (20,000 tires at $30) 600,000
Fixed costs 400,000

Earnings before interest and taxes (EBIT) 200,000
Interest expense 50,000

Earnings before taxes (EBT) 150,000
Income tax expense (40%) 60,000
Earnings after taxes (EAT) $ ...

Purchase this Solution


Free BrainMass Quizzes
Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.