The Harding Company manufactures skates. The company’s income statement for 2013

ID: 2731340 • Letter: T

Question

The Harding Company manufactures skates. The company’s income statement for 2013 is as follows:

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

Compute the degree of financial 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 (number of skates). (Round your answer to the nearest whole number.)

The Harding Company manufactures skates. The company’s income statement for 2013 is as follows:

Answer: a)

Degree of operating leverage = Contribution margin / EBIT

Contribution margin = Sales - Variable expenses

Contribution margin = $799200 - $344100 = $455100

Degree of operating leverage = $455100 / $195100 = 2.33

Answer:b)

Degree of financial leverage = EBIT / EBT

Degree of financial leverage = $195100/ $129600 = 1.51

Answer:c)

Degree of combined leverage = Degree of operating leverage * Degree of financial leverage

Degree of combined leverage = 2.33 * 1.51 = 3.52

Answer:d)

Break even point in units = Fixed costs/ (Per unit sales price - Per unit variable cost)

Break even point in units = $260000/($72 - $31)

Break even point in units = $260000 / $41 = 6341 stakes

Degree of operating levergae 2.33

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