Help me answer this*with solution Problem 10 (Degree of Leverage)The Sapphire Company income statement for 20X4 is as follows:SAPPHIRE COMPANYIncome StatementFor the Year Ended December 31, 20X4P1,200,000600,000400,000200,00050.000150,00045,000P 105,000Sales (20,000 units at P60 each)Less: Variable costs (20,000 units at P30)Fixed costsEarnings before intereșt and taxes (EBIT)Interest expenseEarnings before taxes (EBT)Income tax expense (30%)Earnings after taxes (EAT)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.

Solution:- a)Calculation of Degree of operating leverage as follows under:- Degree of operating…

Answered: a. Degree of operating leverage. b.…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 20PROB

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Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company Bs fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.
Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine for 20Y5 the total fixed costs and the total variable costs.

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a. Degree of operating leverage. b. Degree of financial leverage. Degree of combined leverage. с.