At an output level of 17,500 units, you have calculated that the degree of opera

Question

At an output level of 17,500 units, you have calculated that the degree of operating leverage is 3.40. The operating cash flow is $59,000 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 18,500 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 16,500 units? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Operating cash flow $_________

Explanation / Answer

Solution.

1 If output raise to 18,500 unit than.

Degree of operating leverage = % change in operating income/% change in sales = 3.40.
In response to a 5.71% increase sales, operating income will increase by 19.41% [=3.40 × 5.71%]

Operating cash flow = $59,000 x 119.41% = $70,451.90.

2. If output falls to 16,500 unit than.

Degree of operating leverage = % change in operating income/% change in sales = 3.40.
In response to a 5.71% decrease sales, operating income will increase by 19.41% [=3.40 × 5.71%]

Operating cash flow = $59,000 x 80.59% = $47,548.10

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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