At an output level of 17,000 units, you have calculated that the degree of opera
ID: 2645301 • Letter: A
Question
At an output level of 17,000 units, you have calculated that the degree of operating leverage is 2.00. The operating cash flow is $33,800 in this case.
Ignoring the effect of taxes;
What are fixed costs?
What will the operating cash flow be if output rises to 18,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
What will the operating cash flow be if output falls to 16,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)
What will the operating cash flow be if output rises to 18,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
What will the operating cash flow be if output falls to 16,000 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)
Explanation / Answer
Operating Cash Flow(Cash Flows after Tax) 33,800.00 Less : Depreciation(Assumed to be nil since no information is provided) - Earnings after Tax 33,800.00 Add : Tax(Given to be nil in Question) - Earnings before Tax(EBT) 33,800.00 Add: Interest(Assumed to be nil since no information is provided) - Earnings before Interest and Tax(EBIT) 33,800.00 Add : Fixed costs(Assumed to be X) X Contribution Margin 33800+ X Degree of operating leverage = Contribution Marging/EBIT 2=(33,800+X)/33800 67600 = 33800 +X X=33,800 Fixed Costs $are 33,800 Contrbution at 17,000 units = 33,800+33,800 = 67,600 Statement showing Operating cash flows at different level of output Particulars 17,000.00 18,000.00 16,000.00 Contribution 67,600.00 71576.47 (67,600*18000/17000) 63623.52 (67,600*16000/17000) Less : Fixed costs(same at all level of output) 33,800.00 33,800.00 33,800.00 EBIT(Contribution - Fixed Costs) 33,800.00 37,776.47 29,823.52 Operating Cash Flows(Since interest , deprecition and Taxes are nil operating cash flow is same as EBIT) 33,800.00 37,776.47 29,823.52
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