Vasanth SR
Last Activity: 7 Years ago
Calculate the Degree of Operating Leverage (DOL), Degree of Financial leverage (DFL) and the Degree of Combined Leverage (DCL) for the following firms and interpret the results.
Firm A Firm B Firm C
Output (units) 60,000 15,000 1,00,000
Fixed Costs (Rs) 7,000 14,000 1,500
Variable cost per unit (Rs.) 0.20 1.50 0.02
Interest on borrowed funds 4,000 8,000 -----
Selling price per unit (Rs) 0.60 5.00 0.10
Solution:
Firm A Firm B Firm C
Output (units) 60,000 15,000 1,00,000
Selling price per unit (Rs) 0.60 5.00 0.10
Variable cost per unit (Rs.)0.201.500.02
Contribution per unit0.403.500.08
Total Contribution Rs.24,000 Rs.52,500 RS.8,000
Less fixed costs 7,000 14,000 1,500
EBIT 17,000 38,500 6,500
Less Interest4,0008,000---
Profit before Tax13,00030,5006,500