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Harding Company manufactures skates: compute ratios and break-even point in units

The Harding Company manufactures skates. The company's income statement for 2001 is as follows: (See attachment)

Given this income statement, compute the following:

a. Degree of operating leverage.
b. Degree of financial leverage.
c. Degree of combined leverage.
d. Break-even point in units (number of skates).

Attachments

Solution Preview

Attached you will find the answer to your questions on leverage and break-ever points.

6.
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 expense (40%) 36,000
Earnings after taxes (EAT)
$ 54,000
Given this income statement, compute the ...

Solution Summary

The solution discloses all the formula and calculations including the correct answers to each question.

$2.19