A proposed project has fixed costs of $88,000 per year. The operating cash flow

Question

A proposed project has fixed costs of $88,000 per year. The operating cash flow at 7,800 units is $88,600. Ignoring the effect of taxes, what is the degree of operating leverage? (Round your answer to 4 decimal places. (e.g., 32.1616)) Degree of operating leverage If units sold rise from 7,800 to 8,300, what will be the new operating cash flow? (Do not round intermediate calculations and round your final 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 and round your final answer to 4 decimal places. (e.g., 32.1616)) DOL

Explanation / Answer

Fixed Cost=$88,000

Operating Cash flow at 7,800 units=$88,600

Operating cash flow=Sales-Fixed costs –Variable costs=$88,600

Sales-Variable costs=88600+Fixed costs=88600+88000=$176,600

Degree of operating leverage=(Sales-Variable costs)/(Sales-Variable costs-Fixed costs)

Degree of operating leverage=176600/88600=1.993228

Degree of operating leverage

1.99

Number of units =8,300

(Sales-Variable costs)=(176600/7800)*8300= $ 187,920.51

New Operating Cash flow=(Sales-Variable costs)-Fixed costs= $ 187,920.51 -$88,000

= $ 99,920.51

New operating cash flow

$    99,920.51

New Degree of operating leverage:

Degree of operating leverage=(Sales-Variable costs)/(Sales-Variable costs-Fixed costs)

Degree of operating leverage=187920.51/99920.51= 1.880700044

New Degree of operating leverage

1.8807

Degree of operating leverage

1.99

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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