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23 December, 12:35

At an output level of 12,200 units, you have calculated that the degree of operating leverage is 3.20. The operating cash flow is $67,100 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for output levels of 13,200 units and 11,200 units

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  1. 23 December, 15:09
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    For 13,200, the Operating Leverage is 3.46.

    For 11,200, the Operating Leverage is 2.94.

    Explanation:

    The first step is to calculate the Contribution Margin per unit:

    Operating Leverage = (# of units * Contribution margin per unit) / Net Operating income

    Here,

    Number of Units are 12,200 Units

    Net Operating income $67,100

    Operating Leverage is 3.2

    By putting values, we have:

    3.2 = (12,200 Units * Contribution margin per unit) / $67,100

    (3.2 * $67,100) / 12,200 Units = Contribution margin per unit

    Contribution margin per unit = $17.6 per unit

    For 13,200 units:

    By putting value of units and keeping other variables constant, we have:

    Operating Leverage = (13,200 units x $17.60 per unit) / $67,100

    Operating Leverage = 3.46

    For 11,200 units:

    By putting value of units and keeping other variables constant, we have:

    Operating Leverage = (11,200 units * $17.60 per unit) / $67,100

    Operating Leverage = 2.94
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