Please, use these formulas that are in the image only. STERLING TIRE COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (30,000 tires at $80 each)..$2,400,000Less: Variable costs (30,000 tires at $40).1,200,000Fixed costs .500,000Earnings before interest and taxes (EBIT)..$ 700,000Interest expense..55,000Earnings before taxes (EBT)..$ 645,000Income tax expense (20%)129,000Earnings after taxes (EAT)..$ 516,000Given 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. Using these formulas:1-Breakeven Point Formula:FCQ =p- vc2-Degree of Operating Leverage (DOL):Percentage change in EBITPercentage change in salesDOL3-The formula for calculating the degree of operatingleverage at a base sales level, Q, is the following:eX (P – vc)DOL(Q) = Qx (P –- vc) – FCQ: the sales level. P: sale price. vc: variable operating costs per unit.FC: fixed operating costs.4-The Degree Of Financial Leverage (DFL):Percentage change in EPSPercentage change in EBITDFLEBITDFL at base level EBIT =EBIT - I - (PD x5-degree of total leverage (DTL)Percentage change in EPSPercentage change in salesDTLex (P – vc)PDDTL at Q units =ex (P – vc) – FC – 1 –(2)

Break even refers to the situation of no profit and no loss. At the point of break even, business is…

STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 2013 Sales (30,000 tires at $80 each).. $2,400,000 Less: Variable costs (30,000 tires at $40).. 1,200,000 Fixed costs 500,000 Earnings before interest and taxes (EBIT). $ 700,000 Interest expense.. 55,000 Earnings before taxes (EBT). $ 645,000 Income tax expense (20%). 129,000 Earnings after taxes (EAT). $ 516,000 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.

STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 2013 Sales (30,000 tires at $80 each).. $2,400,000 Less: Variable costs (30,000 tires at $40).. 1,200,000 Fixed costs 500,000 Earnings before interest and taxes (EBIT). $ 700,000 Interest expense.. 55,000 Earnings before taxes (EBT). $ 645,000 Income tax expense (20%). 129,000 Earnings after taxes (EAT). $ 516,000 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter8: Inventories: Special Valuation Issues

Section: Chapter Questions

Problem 11RE: Johnson Corporation had beginning inventory of 20,000 at cost and 35,000 at retail. During the year,...

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