A proposed project has fixed costs of $78,000 per year. The operating cash flow

Question

A proposed project has fixed costs of $78,000 per year. The operating cash flow at 4,500 units is $95,600. Ignoring the effect of taxes, what is the degree of operating leverage? (Round your answer to 4 decimal places. (e.g., 32.1616))

If units sold rise from 4,500 to 5,000, what will be the new operating cash flow? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 4 decimal places. (e.g., 32.1616))

A proposed project has fixed costs of $78,000 per year. The operating cash flow at 4,500 units is $95,600. Ignoring the effect of taxes, what is the degree of operating leverage? (Round your answer to 4 decimal places. (e.g., 32.1616))

Explanation / Answer

Answer: Degree of operating leverage = Contribution/EBIT

Contribution=Operating cash flow+fixed cost

=95600+78000=173600

DOL=173600/95600=1.816 times

Answer: If units sold from 4500 to 5000 than new operating cash flow = (95600/4500)*5000=$106222.22

Answer:New degree of operating leverage=106222.22+78000/106222.22

=1.734 times

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