# How to Calculate Degree of Combined Leverage for a Company

## What is the degree of combined leverage at the current level of sales?

How does the degree of combined leverage affect a company's profitability?

## Degree of Combined Leverage Calculation

The degree of combined leverage (DCL) measures the sensitivity of a company's profits to changes in its sales. It helps determine the company's financial risk and the impact of fixed costs on its overall profitability.

## Calculation Process

To calculate the DCL, we need to determine the company's fixed costs, variable costs, and sales revenue. Given:

- Fixed costs = $24.89 million
- Number of units sold = 7.1 million
- Selling price per unit = $9.07
- Variable cost per unit = $2.1

First, let's calculate the total variable costs:

Total variable costs = Variable cost per unit x Number of units sold

Total variable costs = $2.1 x 7.1 million

Next, let's calculate the sales revenue:

Sales revenue = Selling price per unit x Number of units sold

Sales revenue = $9.07 x 7.1 million

Now, we can calculate the contribution margin:

Contribution margin = Sales revenue - Total variable costs

Finally, we can calculate the DCL:

DCL = Contribution margin / Profit before interest and taxes (PBIT)

To calculate PBIT, we need to subtract the fixed costs from the contribution margin.

It's important to note that the interest expense on the company's debt is not provided in this calculation, which could affect the accuracy of the DCL.