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jayco, inc., sells 10,000 units at a price of $5 per unit. jayco's fixed costs are $8,000, interest expense is $2,000, variable costs are $3 per unit, and ebit is $12,000. jayco's degree of total leverage (dtl) is closest to:

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varshamittal029

Degree of total leverage (dtl) is 2.

Degree of total leverage (dtl) is the ratio which compares the rate of change in earnings per share to the rate of change in revenue from sales.

It is also referred to degree of combined leverage.

DTL= Degree of operating leverage × Degree of financial leverage

Degree of operating leverage = Contribution ÷ EBIT

Degree of financial leverage = EBIT ÷ (EBIT - Interest expense)

Contribution = Sales - Variable cost

In this ques,

Selling price is given to be $5 per unit and total units are 10000. THus, sales is equal to $50000.

Variable cost = $3 × 10000 = $30000

Thus, contribution = $50000-$30000 = $20000

EBIT is given to be $12000

Interest expense is given to be $2000

DTL= Degree of operating leverage × Degree of financial leverage

= (Contribution ÷ EBIT) × (EBIT ÷ (EBIT - Interest expense))

= (20000÷12000) × (12000 ÷ (12000-2000))

= (20000÷12000) ×(12000 ÷ 10000)

= 20000 ÷10000

= 2

Thus, DTL is 2.

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