A proposed project has fixed costs of $96,000 per year. The operating cash flow

Question

A proposed project has fixed costs of $96,000 per year. The operating cash flow at 6,600 units is $96,200. Ignoring the effect of taxes, what is the degree of operating leverage? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.)

Degree of operating leverage

If units sold rise from 6,600 to 7,100, what will be the new operating cash flow? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Operating cash flow

What is the new degree of operating leverage? (Do not round intermediate calculations. Round your answer to 4 decimal places, e.g., 32.1616.)

New DOL

Explanation / Answer

Operating Cash Flow 96200 Less Fixed Cost 96000 Contribution Margin 192200 Degree of Operating Leaverage = Contribution Margin/ Operating Income =192200/96200 2.00 If units sold 6600 and contribution Margin is 192200 then if units sold 7100 then contribution margin is ? =192200/6600*7100 206760.6 New Contribution Margin 206760 Less Fixed Cost 96000 New Operating Cash Flow 110760 New Degree of Operating Leaverage =206760/110760 1.87

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