CA Intermediate · Financial Management and Strategic Management · Financing Decisions - Leverages
Mehta Industries sells 10,000 units at ₹100 per unit. Variable cost is ₹60 per unit and fixed operating cost is ₹2,00,000. Interest is ₹1,00,000. What is the Degree of Combined Leverage (DCL)?
DCL is 4.00. Contribution is ₹4,00,000, EBIT is ₹2,00,000 and EBT is ₹1,00,000. Combined leverage is contribution divided by EBT, which is 4.00, matching DOL of 2 multiplied by DFL of 2.
- A2.00
- B2.67
- C4.00Correct
- D1.33
Explanation
Sales = 10,00,000; variable cost = 6,00,000; contribution = ₹4,00,000. EBIT = 4,00,000 − 2,00,000 = ₹2,00,000. EBT = 2,00,000 − 1,00,000 = ₹1,00,000. DCL = Contribution/EBT = 4,00,000/1,00,000 = 4.00. Check: DOL 2 × DFL 2 = 4.
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