The Harding Company manufactures skates. The company's income statement for 20X1 is as follows HARDING COMPANY...
The Harding Company manufactures skates. The company's income statement for 20X1 is as follows
HARDING COMPANY Income Statement For the Year Ended December 31, 20X1
a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.) Degree of operating leverage
b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.) Degree of financial leverage
c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.) Degree of combined leverage
Homework Answers
a) DOL=(sales-variable costs)/(sales-variable costs-fixed
costs)
=(1014800-448400)/(1014800-448400-330000)
=2.40
b)DFL=EBIT/(EBIT-interest)
=236400/(236400-69000)
=1.41
c)Degree of combined
leverage=(sales-variable)/(EBIT-interest)
=(1014800-448400)/(236400-69000)
=3.38
SOLUTION :
a.
Degree of operating leverage (DOL)
= (Sales - Variable costs)/(Sales - Variable costs - Fixed costs)
= (1014800 - 448400) / (1014800 - 448400 - 330000)
= 566400 / 236400
= 2.40 (ANSWER)
b.
Degree of financial leverage (DFL)
= EBIT / EBT
= 236400 / 167400
= 1.412 = 1.41 (ANSWER).
c.
Degree of combined leverage
= DOL * DFL
= 2.40 * 1.41
= 3.39 (ANSWER).
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