First, calculate the operating results:
|
Opstalan Annual Operating Results |
|
Sales |
$5,000,000 |
|
Variable Costs1 |
2,000,000 |
|
3,000,000 |
|
Fixed Costs |
1,000,000 |
|
EBIT |
2,000,000 |
|
Interest Expense2 |
105,000 |
|
1,895,000 | 1Variable costs = 0.40 × 5,000,000
2Interest Expense = 0.07 × 1,500,000
Second, calculate DOL = (Sales − Variable Costs) / (Sales − Variable Costs − Fixed Costs) = 3,000,000 / 2,000,000 = 1.50
Third, calculate DFL = EBIT / (EBIT − I) = 2,000,000 / 1,895,000 = 1.06.
Finally, calculate DTL = DOL × DFL = 1.50 × 1.06 = 1.59.
|
