Sales (75,000units) P 750,000 Variable costs 225,000 Contribution margin P 525,000 Fixed manufacturing costs 187,500 Operating income P 337,000 Interest 75,000 Earnings before taxes P 262,500 Taxes (at 31%) 81,375 Net income P 181,125 Shares outstanding 15,000

Sales (75,000units) P 750,000 Variable costs 225,000 Contribution margin P 525,000 Fixed manufacturing costs 187,500 Operating income P 337,000 Interest 75,000 Earnings before taxes P 262,500 Taxes (at 31%) 81,375 Net income P 181,125 Shares outstanding 15,000

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...

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Question

100%

Sales (75,000units) P 750,000
Variable costs 225,000
Contribution margin P 525,000
Fixed manufacturing costs 187,500
Operating income P 337,000
Interest 75,000
Earnings before taxes P 262,500
Taxes (at 31%) 81,375
Net income P 181,125
Shares outstanding 15,000

1. The degree of financial leverage is
a. 1.28x
b. 4.50x
c. 3.50x
d. 1.32x

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