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The Sterling Tire Companys income statement for 20X1 is as follows:
| STERLING TIRE COMPANY |
| Income Statement |
| For the Year Ended December 31, 20X1 |
| Sales (28,000 tires at $76 each) | $ | 2,128,000 |
| Variable costs (28,000 tires at $38) | | 1,064,000 |
| Fixed costs | | 480,000 |
| Earnings before interest and taxes (EBIT) | $ | 584,000 |
| Interest expense | | 54,000 |
| Earnings before taxes (EBT) | $ | 530,000 |
| Income tax expense (25%) | | 132,500 |
| Earnings after taxes (EAT) | $ | 397,500 |
| |
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 financial leverage ____
d. Compute the break-even point in units. (Round your answer to the nearest whole number.)
Break-even point _____ units
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