Globo-chem co. forecasts the following income statement for the next year: income statement for the year ended on december 31 net sales $960,000 less: variable costs 532,000 less: fixed costs 151,000 ebit, or noi $277,000 less: interest 161,000 ebt $116,000 less: taxes 46,400 net income $69,600 globo-chem co. uses no preferred stock in its capital structure. click on the following lines and calculate the degrees of operating, financial, and total leverage for globo-chem co.
a. dol =
b. dfl =
c. dtl =

a. 1.55

b. 2.39

c. 3.70

Explanation:

a. The computation of the degree of operating leverage is shown below:

= (Sales - Variable costs) ÷ (Sales - Variable costs - Fixed costs)

= ($960,000 - $532,000) ÷ ($960,000 - $532,000 - $151,000)

= $428,000 ÷ $277,000

= 1.55

The (Sales - Variable costs) = Contribution margin

The  (Sales - Variable costs - Fixed costs) = EBIT

b. The computation of the degree of financial leverage is shown below:

= (EBIT) ÷ (EBIT - Interest expense)

= ($277,000) ÷ ($277,000 - $161,000)

= ($277,000) ÷ ($116,000)

= 2.39

c. The computation of the degree of total leverage is shown below:

= Degree of operating leverage × degree of financial leverage

= 1.55 × 2.39

= 3.70

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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