question archive XYZ wants to determine the Degree of Total Leverage at EBIT=$650,000
XYZ wants to determine the Degree of Total Leverage at EBIT=$650,000
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XYZ wants to determine the Degree of Total Leverage at EBIT=$650,000. As we did earlier, we will assume that:
¥ Fixed costs are $200,000
¥ Baskets are sold for $63.50 each
¥ Variable costs are $38.45 per basket
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Degree of Total Leverage = Fixed Cost*(Total sales – Variable costs) / Earnings before interest and taxes (EBIT)
Given,
Fixed Cost = $200,000
Basket sold = $63.50
Variable cost = $38.45
EBIT = $650,000
Degree of Total Leverage = 200000 * (63.50-38.45) / 650000 = 7.707%
