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20 80 15 4) Avantika Batteries manufactures small batteries for electronic goods. The owner asks the finance officer to chalk out a detailed production planning to maximise the profit in face of severe competition in the market. The finance manager finds out the level of expenditures, and accordingly, she suggests the measures. The present level of different costs and the sale price of three different groups of products are as follows: Variables Product A Product B Product C Output (units) 2,50,000 70,000 3,00,000 Fixed cost (Rs) 3,00,000 6,00,000 7,00,000 Variable cost (Rs/unit) Interest paid (Rs) 25,000 60,000 Sale price (Rs/unit) 30 70 There is a wide difference in the variables relating to the three groups of products. The finance manager has to find out the different types of leverages to frame a sound financial policy under 25% tax incidence. a) What are the operating, financial and combined leverages of each group of products? b) Using the concept of Financial Leverage, by what percentage should EBIT increase if there is a 20 per cent increase in earnings per share from Product B? Verify the result? c) At what level of sales volume will the EBT of the product A equal to zero? d) Using the concept of Operating Leverage, by what percentage will EBIT increase if there is a 10 per cent increase in units sold of Product C? Verify the result. 15

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