At an output level of 16,500 units, you have calculated that the degree of opera

Question

At an output level of 16,500 units, you have calculated that the degree of operating leverage is 2.80. The operating cash flow is $63,500 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for 17,500 units and 15,500 units? (Round your answers to 2 decimal places. (e.g., 32.16))

At an output level of 16,500 units, you have calculated that the degree of operating leverage is 2.80. The operating cash flow is $63,500 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for 17,500 units and 15,500 units? (Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

DOL = Total contribution/Operating Income = Total contribution/(Total contribution- Fixed cost)

Operating income = Total contribution- Fixed cost =63500

Fixed cost = Total contribution- 63500

2.8 = Total contribution/ operating income =Total contribution/63500

Total contribution =2.8*63500=177800

Fixed cost = Total contribution- 63500 =177800- 63500 = 114300

Total contribution for 17500 unit = 177800*(17500/16500) = 188575.8

Total contribution for 15500 unit = 177800*(15500/16500) = 167024.2

Operating cash flow for 17500 unit = Total contribution for 17500 unit

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