Calculate (a) the Operating Leverage, (b) Financial Leverage and (c) Combined Leverage from the following data under situations I and II and financial plans, A and B : Installed capacity 4,000 units per annum Actual prod

(a) Determination of operating leverage Situations I II Sales (4000 units * 75% * ₹30) ₹90,000 ₹90,000 Less variable costs (4000 units * 75% * ₹15) 45,000 45,000 Contribution 45,000 45,000 Less fixed costs 15,000 20,000 EBIT 30,000 25,000 Operating leverage = Contribution / EBIT 1.5 1.8 (b) Determination of financial leverage Situations Financial Plan A Situations Financial Plan B A B A B EBIT ₹30,000 ₹30,000 ₹25,000 ₹25,000 Less interest on debt (20% of ₹10,000 / ₹5,000) 2,000 1,000 2,000 1,000 EBT 28,000 29,000 23,000 24,000 Financial leverage (EBIT/EBT) 1.07 1.03 1.09 1.04 (c) Determination of combined leverage Financial Plans A B Situations I (Operating Leverage * Financial Leverage) 1.5 x 1.07 = 1.61 1.5 x 1.03 = 1.55 Situation II (Operating Leverage * Financial Leverage) 1.8 x 1.09 = 1.96 1.8 x 1.04 = 1.87