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October 31, 2014

Homework Help: FINN 200

Posted by teena on Friday, February 26, 2010 at 6:11pm.

12. The Harmon Company manufactures skates. The company’s income statement
for 2008 is as follows;

Sales (20,000 tires at $60 each) . . . . . . . . . . . . . . . . . . . . . . . . $1,200,000
Less: 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


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.

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