Variable Costs 22,800,000
Revenue before fixed costs $22,950,000
Fixed costs 9,200,000
Interest expense 1,350,000
Earnings before taxes $12,400,000
Taxes (.50) 6,200,000
Net income $ 6,200,000
Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions:
a. At this level of output, what is the degree of operating leverage>
b. What is the degree of financial leverage?
c. What is the degree of combined leverage?
d. What is the firm’s break-even point in sales dollars?
e. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?
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