Scribd
Upload
29K views4 pages

Answers For Problems On Financial Leverage - 1-4

1. Maruthi Limited produced 50,000 units with a selling price of Rs. 50 per unit and variable cost of Rs. 20 per unit. Its fixed costs were Rs. 15 per unit and interest on debentures was Rs. 150,000. Operating leverage was calculated as 2 and financial leverage as 1.25. 2. A firm selling at Rs. 12 per unit with variable costs of Rs. 8 saw its operating leverage increase from 1.333 to 1.429 to 1.6 as its fixed costs increased from Rs. 1,000 to Rs. 1,200 to Rs. 1,500 respectively. 3. A company with equity of Rs. 100,000, preference shares

Uploaded by

jeganrajraj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
29K views4 pages

Answers For Problems On Financial Leverage - 1-4

1. Maruthi Limited produced 50,000 units with a selling price of Rs. 50 per unit and variable cost of Rs. 20 per unit. Its fixed costs were Rs. 15 per unit and interest on debentures was Rs. 150,000. Operating leverage was calculated as 2 and financial leverage as 1.25. 2. A firm selling at Rs. 12 per unit with variable costs of Rs. 8 saw its operating leverage increase from 1.333 to 1.429 to 1.6 as its fixed costs increased from Rs. 1,000 to Rs. 1,200 to Rs. 1,500 respectively. 3. A company with equity of Rs. 100,000, preference shares

Uploaded by

jeganrajraj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

1. Q.14.

B November 2019 - Leverage


Calculate operating leverage and financial leverage for Maruthi Limited
from the following information
 Number of Units Produced 50,000
 Selling Price per Unit is Rs. 50
 Variable Cost per Unit is Rs. 20
 Fixed Cost per Unit at Current Level of Sales is Rs. 15
 Interest on Debentures Rs. 1,50,000

Answer
Format for Net Income Statement

Total Amount
Particulars Cost Per Unit (Rs.)
(Rs)
Sales 50000 units × Rs. 50 2500000
(-) Variable Cost 50000 units × Rs. 20 1000000
Contribution   1500000
(-) Fixed Cost 50000 units × Rs. 15 750000
EBIT   750000
(-) Interest on Debentures   150000
EBT   600000

Operating Leverage =
1500000 / 75000 = 2
Contribution / EBIT

Financial Leverage =
750000 / 600000 = 1.25
EBIT / EBT

1
2. Q.14.B November 2018 – Leverage
A firm sells its only product at Rs. 12 per unit. Its variable cost is Rs. 8 per
unit. Present sales are 1,000 units. Calculate the operating leverage in
each of the following situations.
a) When fixed cost is Rs. 1,000
b) When fixed cost is Rs. 1,200
c) When fixed cost is Rs. 1,500

Answer
Format for Net Income Statement

When fixed When fixed When


Particulars Details cost is Rs. cost is Rs. fixed cost
1,000 1,200 is Rs. 1,500

Sales 1000 units × Rs. 12 12,000 12,000 12,000

(-) Variable Cost 1000 units × Rs. 8 8,000 8,000 8,000

Contribution   4,000 4,000 4,000

(-) Fixed Cost Refer the problem 1,000 1,200 1,500

EBIT   3,000 2,800 2,500

Contribution /
Operating Leverage 1.333 1.429 1.600
EBIT

3. Q.18.B November 2017 – leverage


 Equity share capital Rs. 1,00,000

2
 10% preference share capital Rs. 1,00,000
 8% Debentures Rs. 1,25,000
 The present EBIT is Rs. 50,000.
Calculate the financial leverage assuming that the company is in 50% tax
bracket.
Answer

Format for Net Income Statement

Total Amount
Particulars Cost Per Unit (Rs.)
(Rs)
Referred as Income Or
present EBIT 50,000
Sales
(-) 8% Interest on Debentures (8/100 × 125,000) 10,000

EBT   40,000

Financial Leverage = EBIT / EBT = 50000 / 40000 1.25

4. Q.14.B November 2016 – Leverage


The following data are available for R and S Ltd.

3
Selling Price Rs. 120 per unit
Variable Cost Rs. 70 per unit
Fixed cost Rs. 2,00,000
a) What is operating leverage when R and S Ltd produces and sells
6,000 units?
b) What is the percentage change that will occur in the EBIT, if the
output increases by 5%?
c) Calculate revised operating leverage

Answer
Format for Net Income Statement

a) What is operating leverage when R and S Ltd produces and sells 6,000 units?
Particulars Details R Ltd S Ltd
Sales 6000 units × Rs. 120 720,000 720,000
(-) Variable Cost 6000 units × Rs. 70 420,000 420,000
Contribution   300,000 300,000
(-) Fixed Cost Rs. 2,00,000 200,000 200,000
EBIT   100,000 100,000
Operating Leverage Contribution / EBIT 3 3

b) What is the percentage change that will occur in the EBIT, if the output increases by 5%?
& c) Calculate revised operating leverage
Particulars Details R Ltd S Ltd
5% output Rises = (5/100)*600) =
300
Sales 756,000 756,000
Hence total output = 6000+300 =
6300
(-) Variable Cost 6300 units × Rs. 70 441,000 441,000
Contribution   315,000 315,000
(-) Fixed Cost Rs. 2,00,000 200,000 200,000
EBIT   115,000 115,000
Operating Leverage Contribution / EBIT 3 3

You might also like