The Sterling Tire Company's income statement for 2013 is as follows:
| STERLING TIRE COMPANY |
| Income Statement |
| For the Year Ended December 31, 2013 |
| Sales (39,000 tires at $98 each) |
$ |
3,822,000 |
| Variable costs (39,000 tires at $49) |
|
1,911,000 |
| Fixed costs |
|
590,000 |
|
|
|
| Earnings before interest and taxes (EBIT) |
$ |
1,321,000 |
| Interest expense |
|
59,500 |
|
|
|
| Earnings before taxes (EBT) |
$ |
1,261,500 |
| Income tax expense (20%) |
|
252,300 |
|
|
|
| Earnings after taxes (EAT) |
$ |
1,009,200 |
Given this income statement, compute the following:
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.)
Break-even point units