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Haunted Forest, Inc
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.?
Expert Solution
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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