At an output level of 18,500 units, you have calculated that the degree of opera

Question

At an output level of 18,500 units, you have calculated that the degree of operating leverage is 3.00. The operating cash flow is $48,000 in this case. Ignoring the effect of taxes, what are fixed costs?

What will the operating cash flow be if output rises to 20,500 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 18,500 units? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

At an output level of 18,500 units, you have calculated that the degree of operating leverage is 3.00. The operating cash flow is $48,000 in this case. Ignoring the effect of taxes, what are fixed costs?

Explanation / Answer

1)Degree of operating leverage = Contribution margin/operating income

                   3                    =   X/48000

X(Contribution margin) = 48000*3 = $144,000

Fixed cost = Contribution income - operating income

                = 144000 - 48000

                =$ 96,000

2)Contribution margin if 20,500 units are produced = 144000 * 20500 /18500

                                                                         =$ 159567.5678

Operating cash flow = Contribution margin- fixed cost(calculated in 1)

                              = 159567.5678 - 96000

                              = $ 63,567.57(approx)

* fIxed cost remain constant.

3) operation cash flow will remain same As in above = $ 48,000

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