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

a loan? that’s my guess, anywho.