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Sosa Company Baseball Gloves

The Sosa Company produces baseball gloves. The company's income statement for 2004 is as follows:
SOSA COMPANY
Income Statement
For the Year Ended December 31, 2004
Sales (20,000 gloves at $60 each) $1,200,000
Less: Variable costs (20,000 gloves at $20) 400,000
Fixed costs 600,000
Earnings before interest and taxes (EBIT) 200,000
Interest expense 80,000
Earnings before taxes (EBT) 120,000
Income tax expense (30%) 36,000
Earnings after taxes (EAT) $ 84,000
Given this income statement, compute the following:
1. Degree of operating leverage.
2. Degree of financial leverage.
3. Degree of combined leverage.

Solution Preview

# of units 20,000
Sales @ $60 per unit= $1,200,000
Less Variable Cost @ $20 per unit= $400,000
Contribution= $800,000 =$1,200,000. - $400,000.
Less Fixed Cost= $600,000
EBIT= $200,000 =$800,000. - ...

Solution Summary

Calculates degree of operating leverage, degree of financial leverage and degree of combined leverage for a company using its income statement.

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