At an output level of 48,000 units, you calculate that the degree of operating l

Question

At an output level of 48,000 units, you calculate that the degree of operating leverage is 1.40. If output rises to 60,960 units, what will the percentage change in operating cash flow be? (Do not round your intermediate calculations.)

37.80%

29.76%

39.69%

38.93%

35.91%

At an output level of 48,000 units, you calculate that the degree of operating leverage is 1.40. If output rises to 60,960 units, what will the percentage change in operating cash flow be? (Do not round your intermediate calculations.)

Explanation / Answer

Change in output:

= (60960-48000)÷48000

= 27%

Operating leverage = 1.4

Hence, increase in contribution/operating cash flows will be 37.8% (27%×1.4)

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