At an output level of 18,200 units, you have calculated that the degree of opera

Question

At an output level of 18,200 units, you have calculated that the degree of operating leverage is 2.90. The operating cash flow is $59,500 in this case. Ignoring the effect of taxes, what are fixed costs? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)

Fixed costs ???

What will the operating cash flow be if output rises to 19,000 units? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Operating cash flow ???

What will the operating cash flow be if output falls to 17,000 units? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Operating cash flow ???

Explanation / Answer

Answer 1 Degree of operating leverage = Contribution margin / operating income Degree of operating leverage = 2.90 Operating income = $59500 Hence Contribution margin = Degree of operating leverage * operating income = 2.90 * 59500 = $172550 Fixed Costs = Contribution margin - Operating income = $172550 - $59500 = $113050 Answer 2 Contribution margin per unit = Contribution margin / output level = 172550 / 18200 =$9.48 per unit If output rises to 19000 units , contribution margin would be = $9.48 * 19000 = $180120 Operating Cash flow = Contribution margin / Degree of operating leverage = 180120 / 2.90 = $62110.34 Answer 3 If output falls to 17000 units , contribution margin would be = $9.48 * 17000 = $161160 Operating Cash flow = Contribution margin / Degree of operating leverage = 161160 / 2.90 = $55572.41

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.