ms-04 mba assignment july dec 2010 Question4

Q.4. Compute the degree of operating leverage, degree of financial leverage and degree of combined leverage.

Degree of operating leverage = Sales revenue - total variable cost / sales revenue -  total cost

Sales Revenue = 36000 X 10 = 3, 60,000

Total Variable cost = 36000 X 6 = 2, 16,000

 Total cost = 2, 16,000 + 50,000 = 2, 66,000

Operating Leverage = 3, 60,000 – 2, 16,000 / 3, 60,000 – 2, 66,000

                                    = 1,44,000 / 94,000 = 1.53

Degree of Financial Leverage:

                                   

                                              = 195/-31 = -6.2

Degree of Combined Leverage:

                                                 = 195/ 83 = 2.34