Chapter 2: 13BP_e (page 148)

United Snack Company sells 50-pound bags of peanuts to university dormitories for $20 a bag. The fixed costs of this operation are $176,250, while the variable costs of peanuts are $0.15 per pound.
e. What is the degree of combined leverage at both sales levels?

Short Answer

Expert verified

The combined leverage at 19,000 bags is 5.14 and at 24,000 bags is 2.76.

Step by step solution

Income statement at the sales volume of 19,000 bags and at 24,000 bags

Particulars	19,000 bags	24,000 bags
Sales	$380,000 (19,000 x $20)	$480,000 (24,000 x $20)
Less: variable cost	142,500 (19,000 x $7.50)	180,000 (24,000 x $7.5)
Contribution	$237,500	$300,000
Less: Fixed cost	176,250	176,250
EBIT	61,250	123,750
Less: Interest	15,000	15,000
EBT	$46,250	$108,750

Combined leverage at 19,000 bags

$\begin{array}{rcl} Combined leverage & = & \frac{Contribution}{EBT} \\ = & \frac{$ 237, 500}{$ 46, 250} \\ = & 5.14 \end{array}$

Combined leverage at 24,000 bags

$\begin{array}{rcl} Combined leverage & = & \frac{Contribution}{EBT} \\ = & \frac{$ 300, 000}{$ 108, 750} \\ = & 2.76 \end{array}$

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	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

United Snack Company sells 50-pound bags of peanuts to university dormitories for \(20 a bag. The fixed costs of this operation are \)176,250, while the variable costs of peanuts are $0.15 per pound.
e. What is the degree of combined leverage at both sales levels?

Short Answer

Step by step solution

Income statement at the sales volume of 19,000 bags and at 24,000 bags

Combined leverage at 19,000 bags

Combined leverage at 24,000 bags

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Managers

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Study anywhere. Anytime. Across all devices.

United Snack Company sells 50-pound bags of peanuts to university dormitories for \(20 a bag. The fixed costs of this operation are \)176,250, while the variable costs of peanuts are $0.15 per pound.e. What is the degree of combined leverage at both sales levels?

Short Answer

Step by step solution

Income statement at the sales volume of 19,000 bags and at 24,000 bags

Combined leverage at 19,000 bags

Combined leverage at 24,000 bags

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Managers

Human Resources

Introduction to Business

Operational Management

Organizational Communication

Business Operations

Study anywhere. Anytime. Across all devices.

United Snack Company sells 50-pound bags of peanuts to university dormitories for \(20 a bag. The fixed costs of this operation are \)176,250, while the variable costs of peanuts are $0.15 per pound.
e. What is the degree of combined leverage at both sales levels?