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Homework answers / question archive / Haunted Forest, Inc

Haunted Forest, Inc

Finance

Haunted Forest, Inc.is selling fog machines.

Use the following information about Haunted Forest, Inc. to answer the following questions.

Average selling price per unit $309.

Variable cost per unit $198

Units sold 336

Fixed costs $17,866

Interest expense $4,363

 Based on the data above, what is the degree of total (combined) leverage of Haunted Forest, Inc.?

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Computation of the degree of total (Combined) leverage:-

Contribution margin = (Selling price per unit - Variable cost per unit) * Unit sold

= ($309 - $198) * 336

= $111 * 336

= $37,296

EBT = Contribution margin - Fixed cost - Interest expense

= $37,296 - $17,866 - $4,363

= $15,067

Degree of combined leverage = Contribution margin / EBT

= 2.48

 

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