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9 May, 09:54

At an output level of 46,000 units, you calculate that the degree of operating leverage is 3.20. Suppose fixed costs are $130,000. What is the operating cash flow at 40,000 units? (Do not round intermediate calculations and round your final answer to the nearest whole number, e. g., 32.) Operating cash flow $

What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 3 decimal places, e. g., 32.161.) Degree of operating leverage

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  1. 9 May, 12:09
    0
    Operating cash flow for 40,000 units = $34,426.88

    New degree of operating leverage = 4.776

    Explanation:

    Data provided in the question:

    Output level = 46,000 units

    Degree of operating leverage = 3.20

    Fixed costs = $130,000

    Now,

    Operating leverage = (Contribution margin) : (Operating cash flow)

    Also,

    Contribution margin = Operating cash flow + Fixed costs

    Thus,

    3.20 = (Operating cash flow + Fixed costs) : (Operating cash flow)

    or

    3.20 = 1 + (Fixed costs) : (Operating cash flow)

    or

    Operating cash flow = $130,000 : 2.20

    or

    Operating cash flow = $59,090.91

    contribution margin for 46,000 units = $59,090.91 + $130,000

    = $189,090.91

    and,

    Contribution margin for 40,000 units = $189,090.91 * [ 40,000 : 46,000 ]

    = $164,426.88

    Therefore,

    Operating cash flow for 40,000 units

    = Contribution margin - Fixed costs

    = $164,426.88 - $130,000

    = $34,426.88

    Now,

    New degree of operating leverage = Contribution margin : Operating cash flow

    = $164,426.88 : $34,426.88

    = 4.776
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