The Sterling Tire Company's income statement for 20X1 is as follows:
Sterling Tire Company
Income Statement
For the Year Ended December 31, 20X1
Sales (36,000 tires at $92 each) $3,312,000
Variable cost (36,ooo tires at $46) $1,656000
Fixed cost $560,000
Earnings before interest and taxes (EBIT) $1,096,000
Interest expense $58,000
Earnings before taxes (EBT) $1, 038,000
Income tax expense (20%) $ 207,600
Earnings after taxes (EAT) $830,400
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___________
d. Compute the break-even point in units. (Round your answer to the nearest whole number.)
