Question
In: Accounting
The degree of operating leverage can be calculated as:
The degree of operating leverage can be calculated as:
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Expert Solution
The degree of operating leverage can be calculated as:
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Operating leverage is a measure of business risk. It is defined as the firm’s ability to use fixed operating cost to magnify the effect of changes in sales on its earnings before Interest and taxes. The % change in EBIT due to a % change in sales is known as operating leverage. Operating leverage is associated with capital budgeting decisions. The degree of operating leverage at a given level of sales is calculated by dividing the contribution margin with the net operating income. Degree of Operating Leverage = Contribution Margin Net Operating Income
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ekkarill92 answered 9 months agoRelated Solutions
What is meant by the term operating leverage? How is the degree of operating leverage calculated?....
What is meant by the term operating leverage? How is the degree of operating leverage calculated?.
What are the assumptions that underlie CVP analysis?
Calculate the degree of operating leverage, degree of financial leverage, and degree of total operating leverage given:
Calculate the degree of operating leverage, degree of financial leverage, and degree of total operating leverage given: Revenue grows from $200 to $230 EBIT grows from $50 to $60 NI grows from $20 to $28
At an output level of 16,000 units, you have calculated that the degree of operating leverage...
At an output level of 16,000 units, you have calculated that the
degree of operating leverage is 1.6. The operating cash flow is
$32,000 in this case.
Required:
(a)
Ignoring the effect of taxes, what are fixed costs? (Do
not round your intermediate calculations.)
(Click to
select)$21,500$26,000$19,200$22,900$18,550
(b)
What will the operating cash flow be if output rises to 17,000
units? (Do not round your intermediate
calculations.)
(Click to
select)$43,000$39,500$37,800$34,250$35,200
(c)
What will the operating cash flow...
At an output level of 12,400 units, you have calculated that the degree of operating leverage...
At an output level of 12,400 units, you have calculated that the
degree of operating leverage is 2.70. The operating cash flow is
$46,000 in this case. Ignore the effect of taxes. What will be the
new degree of operating leverage for output levels of 13,400 units
and 11,400 units? (Do not round intermediate calculations.
Round your answers to 2 decimal places, e.g., 32.16.)
13,400 units
11,400 units
Degree
of operating leverage
At an output level of 17,000 units, you have calculated that the degree of operating leverage...
At an output level of 17,000 units, you have calculated that the
degree of operating leverage is 2.20. The operating cash flow is
$64,000 in this case. Ignore the effect of taxes. What will be the
new degree of operating leverage for output levels of 18,000 units
and 16,000 units? (Do not round intermediate calculations. Round
your answers to 2 decimal places, e.g., 32.16.)
At an output level of 18,000 units, you have calculated that the degree of operating leverage...
At an output level of 18,000 units, you have calculated that the
degree of operating leverage is 2.10. The operating cash flow is
$46,500 in this case. Ignore the effect of taxes.
a. What are fixed costs? (Do not round intermediate calculations
and round your answer to the nearest whole number, e.g., 32.)
b. What will the operating cash flow be if output rises to
19,000 units? (Do not round intermediate calculations and round
your answer to 2 decimal places,...
What is the Degree of Operating Leverage?
What is the Degree of Operating Leverage?
Explain the implications of the “Degree of Operating Leverage”.
Explain the implications of the “Degree of Operating
Leverage”.
If we consider the effect of taxes, then the degree of operating leverage can be written...
If we consider the effect of
taxes, then the degree of operating leverage can be written
as:
DOL = 1 + [FC × (1 –
TC) – TC × D] / OCF
Consider a project to supply Detroit with 40,000 tons of machine
screws annually for automobile production. You will need an initial
$5,800,000 investment in threading equipment to get the project
started; the project will last for six years. The accounting
department estimates that annual fixed costs...
If we consider the effect of taxes, then the degree of operating leverage can be written...
If we consider the effect of taxes, then the degree of operating
leverage can be written as: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF
Consider a project to supply Detroit with 27,000 tons of machine
screws annually for automobile production. You will need an initial
$6,000,000 investment in threading equipment to get the project
started; the project will last for 6 years. The accounting
department estimates that annual fixed costs will be $1,450,000 and...
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