Following is Van Auken Lumber’s 2015 income statement.

Van Auken Lumber: Income Statement for December 31, 2015 ($ thousands)

Sales ………………………………………………    $ 36,000

Cost of goods sold ……………………………….      (25,200)

Gross profit ………………………………………     $10,800

Fixed operating costs ……………………………       (6,480)

Earnings before interest and taxes ………………      $ 4,320

Interest             ………………………………………….       (2,880)

Earnings before taxes …………………………..       $ 1,440

Taxes (40%) ……………………………………         (576)

Net income …………………………………….         $ 864

Dividends (50%) ………………………………         $ 432

a. Compute the degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) for Van Auken Lumber.

b. Interpret the meaning of each of the numerical values you computed in part (a).

c. Briefly discuss some ways that Van Auken can reduce its degree of total leverage.