Part 3 - Break-even, Financial and Operating Leverages Johnson Products

Part 3: Break-even, Financial and Operating Leverages Johnson Products, Inc. Income Statement For the Year Ended December 31, 2018 Sales (40,000 bags at $50 each) .................................. $2,000,000  Less: Variable costs (40,000 bags at $25)................ 1,000,000  Fixed costs.............................................................. 600,000 Earnings before interest and taxes .............................. 400,000 Interest expense ........................................................... 120,000 Earnings before taxes ................................................. 280,000 Income tax expense (20%) .......................................... 56,000 Net income .................................................................. $ 224,000 Based on the information above, calculate (show all calculations and responses in good form):

a. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning? b. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? c. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?