The Sterling Tire Company’s income statement for 2013 is as follows: STERLING TI

Question

The Sterling Tire Company’s income statement for 2013 is as follows:

  

STERLING TIRE COMPANY

Income Statement

     

Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

    

   

   

   

Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

   

   

Compute the break-even point in units. (Round your answer to the nearest whole number.)

     

STERLING TIRE COMPANY

Income Statement

For the Year Ended December 31, 2013   Sales (20,000 tires at $60 each) $ 1,200,000      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 (30%) 45,000      Earnings after taxes (EAT) $   105,000   

Explanation / Answer

Statement showing computations Particulars Amount Sales Revenue    1,200,000.00 Less Variable Costs     (600,000.00) Contribution Margin        600,000.00 Fixed Costs     (400,000.00) EBIT        200,000.00 Less Interest Expense        (50,000.00) EBT        150,000.00 Income Taxes        (45,000.00) EAT        105,000.00 Degree of Operating Leverage = Cont/EBIT                     3.00 Degree of Financial Leverage = EBIT/EBT                     1.33 Degree of Combined Leverage = DOL*DFL                     4.00 Contirbution per unit = 60- 30                    30.00 BEP in units = (400,000 + 50,000)/30          15,000.00

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.