A proposed project has fixed costs of $80,000 per year. The operating cash flow

Question

A proposed project has fixed costs of $80,000 per year. The operating cash flow at 7,700 units is $93,600. Ignoring the effect of taxes, what is the degree of operating leverage? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.)

If units sold rise from 7,700 to 8,200, what will be the new operating cash flow? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

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

A proposed project has fixed costs of $80,000 per year. The operating cash flow at 7,700 units is $93,600. Ignoring the effect of taxes, what is the degree of operating leverage? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.)

Explanation / Answer

Operating Income per unit = $93600 / 7700 = $12.1558

Fixed cost per unit = $80,000 / 7700 = $10.3896

Total contribution per unit = $12.1558 + $10.3896 = $22.5454

Degree of operating leverage = Contribution / Operating income

= $22.5454 / $12.1558

= 1.8547

If units sold rise from 7,700 to 8,200, the new operating cash flow = $12.1558 * 8200 = $99677.56

Fixed cost per unit at units sold  rise from 7,700 to 8,200 = $80000 / 8200 = $9.7561

The new degree of operating leverage = ($12.1558 + $9.7561) / $12.1558 = 1.8025

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