Harding Company: Operating And Financial leverage
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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)?
Your help is GREATLY appreciated, Thank you!!
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a.) How do I compute the Degree of operating leverage?
DOL = (Sale-VC) / (Sale - VC- FC) = (500, -200,) / (500, -200, ...
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