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At an output level of 17,000 units, you have calculated that the degree of opera

ID: 2645301 • Letter: A

Question

At an output level of 17,000 units, you have calculated that the degree of operating leverage is 2.00. The operating cash flow is $33,800 in this case.

Ignoring the effect of taxes;

What are fixed costs?

What will the operating cash flow be if output rises to 18,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What will the operating cash flow be if output falls to 16,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)

What will the operating cash flow be if output rises to 18,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What will the operating cash flow be if output falls to 16,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)

Explanation / Answer

Operating Cash Flow(Cash Flows after Tax)                           33,800.00 Less : Depreciation(Assumed to be nil since no information is provided)                                          -   Earnings after Tax                           33,800.00 Add : Tax(Given to be nil in Question)                                          -   Earnings before Tax(EBT)                           33,800.00 Add: Interest(Assumed to be nil since no information is provided)                                          -   Earnings before Interest and Tax(EBIT)                           33,800.00 Add : Fixed costs(Assumed to be X) X Contribution Margin 33800+ X Degree of operating leverage = Contribution Marging/EBIT 2=(33,800+X)/33800 67600 = 33800 +X X=33,800 Fixed Costs $are 33,800 Contrbution at 17,000 units = 33,800+33,800 = 67,600 Statement showing Operating cash flows at different level of output Particulars                           17,000.00                                         18,000.00                             16,000.00 Contribution                           67,600.00 71576.47 (67,600*18000/17000) 63623.52 (67,600*16000/17000) Less : Fixed costs(same at all level of output)                           33,800.00                                         33,800.00                             33,800.00 EBIT(Contribution - Fixed Costs)                           33,800.00                                         37,776.47                             29,823.52 Operating Cash Flows(Since interest , deprecition and Taxes are nil operating cash flow is same as EBIT)                           33,800.00                                         37,776.47                             29,823.52

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