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At an output level of 17,000 units, you have calculated that the degree of operating leverage...

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Finance

At an output level of 17,000 units, you have calculated that thedegree of operating leverage is 2.20. The operating cash flow is$64,000 in this case. Ignore the effect of taxes. What will be thenew degree of operating leverage for output levels of 18,000 unitsand 16,000 units? (Do not round intermediate calculations. Roundyour answers to 2 decimal places, e.g., 32.16.)

Answer & Explanation Solved by verified expert
4.5 Ratings (891 Votes)

Degree of operating leverage = contribution / operating cash flow

   2.2 = contribution / 64000

   contribution = 2.2 *64000 = 140800            [contribution per unit = 140800/17000 = 8.28235]

Fixed cost = contribution -operating cash flow

                  = 140800 - 64000

                   = 76800

a)Contribution = 8.28235*18000= 149082.30

Operating cash flow = 149082.30 - 76800

                               = 72282.30

Degree of operating leverage at 18000 units = 149082.3 / 72282.30

                                         = 2.06

b)

Contribution = 8.28235*16000= 132517.6

Operating cash flow = 132517.6 - 76800

                               = 55717.6

Degree of operating leverage at 16000 units = 132517.6/55717.6

                                         = 2.38
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At an output level of 17,000 units, you have calculated that thedegree of operating leverage is 2.20. The operating cash flow is$64,000 in this case. Ignore the effect of taxes. What will be thenew degree of operating leverage for output levels of 18,000 unitsand 16,000 units? (Do not round intermediate calculations. Roundyour answers to 2 decimal places, e.g., 32.16.)

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