At an output level of 8,200 units, you have calculated that the degree of operat

Question

At an output level of 8,200 units, you have calculated that the degree of operating leverage is 1.90. The operating cash flow is $62,500 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for 9,200 units and 7,200 units? (Round your answers to 2 decimal places. (e.g., 32.16))

  

At an output level of 8,200 units, you have calculated that the degree of operating leverage is 1.90. The operating cash flow is $62,500 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for 9,200 units and 7,200 units? (Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Answer:

Formula: Per unit cash flow = operating cash flow/units

Fixed cost= Contribution-Operating cash flow

Contribution= Operating cash flow+fixed cost

Fixed cost is constant at all levels of output.

Units 8200 7200 9200 Contribution 118750 111128.0488 126371.9512 Operating cash flow 62500 54878.04878 70121.95122 DOL 1.9 2.025 1.802173913 Fixed cost 56250 56250 56250 Per unit cash flow 7.621951 7.62195122 7.62195122

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