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P13–9 Degree of operating leverage Grey Products has fixed operating costs of $380,000,
variable operating costs of $16 per unit, and a selling price of $63.50 per unit.
a. Calculate the operating breakeven point in units.
b. Calculate the firm’s EBIT at 9,000, 10,000, and 11,000 units, respectively.
c. With 10,000 units as a base, what are the percentage changes in units sold and EBIT
as sales move from the base to the other sales levels used in part b?
d. Use the percentages computed in part c to determine the degree of operating
leverage (DOL).
e. Use the formula for degree of operating leverage to determine the DOL at 10,000
units.
Jawab
a. operating breakeven point
FC
Q=
P−VC
$ 380.000
Q=
$ 63,50−$ 16
Q = 8.000 Units
c. With 10,000 units as a base, what are the percentage changes in units sold and EBIT
as sales move from the base to the other sales levels used in part b?
- 10% + 10%
Sales (in unit) 9.000 10.000 11.000
d. Use the percentages computed in part c to determine the degree of operating leverage
(DOL).
percentages change∈ EBIT
DOL =
percentages change∈ sales
50 % −50 %
DOL = or
10 % −10 %
DOL = 5
e. Use the formula for degree of operating leverage to determine the DOL at 10,000
units.
Q x ( P−VC )
DOL at 10.000 =
Q x ( P−VC ) −FC
10.000 x (63,5−16)
DOL at 10.000 =
10.000 x ( 63,5−16 )−380.000
475.000
DOL at 10.000 =
95.000
DOL at 10.000 = 5
P13–12 Degree of financial leverage Northwestern Savings and Loan has a current capital
structure consisting of $250,000 of 16% (annual interest) debt and 2,000 shares of common
stock. The firm pays taxes at the rate of 40%.
a. Using EBIT values of $80,000 and $120,000, determine the associated earnings per
share (EPS).
b. Using $80,000 of EBIT as a base, calculate the degree of financial leverage (DFL).
c. Rework parts a and b assuming that the firm has $100,000 of 16% (annual interest)
debt and 3,000 shares of common stock.
Jawab
a. Using EBIT values of $80,000 and $120,000, determine the associated (EPS).
Earnings Per Share (EPS).
+ 50%
+ 100%
b. Using $80,000 of EBIT as a base, calculate the degree of financial leverage (DFL).
Percentage change∈ EPS
DFL =
Percentage change∈ EBIT
100 %
DFL =
50 %
DFL = 2
Use formula
EBIT
DFL at $ 80.000 = 1
EBIT−I −(PD x )
1−T
$ 80.000
DFL at $ 80.000 = 1
$ 80.000−$ 40.000−(0 x )
1−0,4
$ 80.000
DFL at $ 80.000 =
$ 80.000−$ 40.000−0
DFL at $ 80.000 = 2
c. Rework parts a and b assuming that the firm has $100,000 of 16% (annual interest)
debt and 3,000 shares of common stock.
+ 50%
+ 62,50%
Percentage change∈ EPS
DFL =
Percentage change∈ EBIT
62,50 %
DFL =
50 %
DFL = 1,25
Use formula
EBIT
DFL at $ 80.000 = 1
EBIT−I −(PD x )
1−T
$ 80.000
DFL at $ 80.000 = 1
$ 80.000−$ 16.000−(0 x )
1−0,4
$ 80.000
DFL at $ 80.000 =
$ 80.000−$ 16.000−0
DFL at $ 80.000 = 1,25
b. On the basis of the firm’s current sales of 30,000 units per year and its interest and
preferred dividend costs, calculate its EBIT and earnings available for common.
15.000
f. Percentage change in sale = = 50%
30.000
percentages change∈ EBIT
DOL =
percentages change∈ sales
Percentage change in EBIT = DOL x Percentages change in sale
Percentage change in EBIT = 3 x 50%
Percentage change in EBIT = 150%
EBIT after additional 15.000 latches = $ 25.000 + ($ 25.000 x 150%)
EBIT after additional 15.000 latches = $ 25.000 + $ 37.500
EBIT after additional 15.000 latches = $ 62.500