Please Help: question
Posted Date : 25-Apr-2013 , 09:58:12 am | Posted By: Rinku Gupta
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Accounts | Answers :
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Company has sales of Rs.10,00,000 ; Variable Costs of Rs. 7,00,000; Fixed Costs of Rs. 2,00,000 and Debentures of Rs. 5,00,000 at 10% interest . Calculate operating ,financial and combined leverages. |
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Answers:
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 Answer by: |
| For solving this question i assumed that Fixed Cost includes Interest on debenture.
Sales- 10,00,000
Less: Variable Cost - 7,00,000
Contribution = 3,00,000
Less: Fixed Cost before interest - 1,50,000
EBIT - 1,50,000
Less : Interest on Debenture - 50,000
PBT - 1,00,000
Operating Leverage : Contribution/EBIT = 3,00,000/1,50,000
Operating Leverage = 2
Financial Leverage = EBIT / PBT = 1,50,000/1,00,000
Financial Leverage = 1.5
Combined Leverage = OL*FL = 2*1.5 = 3
Working Note:
Fixed Cost Before Interest: 2,00,000 - 50,000 = 1,50,000
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