At an output level of 75,000 units, you calculate that the degree of operating l

Question

At an output level of 75,000 units, you calculate that the degree of operating leverage is 3.40. Suppose fixed costs are $190,000. What is the operating cash flow at 69,000 units? (Do not round intermediate calculations and round your final answer to the nearest whole number, e.g., 32.)

At an output level of 75,000 units, you calculate that the degree of operating leverage is 3.40. Suppose fixed costs are $190,000. What is the operating cash flow at 69,000 units? (Do not round intermediate calculations and round your final answer to the nearest whole number, e.g., 32.)

Explanation / Answer

At 75000,DOL=1+FC/OCF

=>OCF=190000/2.4=79166.67

Also, DOL=%change in OCF/%change in Quantity

%change in OCF=DOL*%change in Quantity=3.4*(69000-75000)/75000=-27.2%

Hence, OCF=79166.67*(1-27.2%)=$57633.34

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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