The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (ii) Using t
CS Professional · Financial, Treasury and Forex Management · PYQS · June 2015
The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (ii) Using the concept of operating leverage, by what percentage will EBIT increase if there is 10% increase in sales.
Answer & Explanation:
Degree of Operating Leverage (DOL) = Contribution / EBIT = ₹1,40,000 / ₹40,000 = 3.50 (ii) If sales increase by 10%, the EBIT would increase by 10 x 3.5 = 35%
Topics: Capital Structure
Related Questions in this Topic
- ABC Ltd. has furnished the following information : Earning per share ₹4 Dividend payout ratio 25% Market price per share...
- Calculate (a) the Operating Leverage, (b) Financial Leverage and (c) Combined Leverage from the following data under sit...
- Calculate the level of earnings before interest and tax (EBIT) at which the EPS indifference point between the following...
- The capital structure is significant for the overall ranking of the firm in the industry group. Discuss.
- The operating income of Fine Crockery Ltd. is ₹9 lakhs before interest and taxes. The cost of debt is 10 percent and the...