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.)

Expert Solution

Degree of operating leverage = contribution / operating cash flow

2.2 = contribution / 64000

contribution = 2.2 *64000 = 140800 [contribution per unit = 140800/17000 = 8.28235]

Fixed cost = contribution -operating cash flow

= 140800 - 64000

= 76800

a)Contribution = 8.28235*18000= 149082.30

Operating cash flow = 149082.30 - 76800

= 72282.30

Degree of operating leverage at 18000 units = 149082.3 / 72282.30

= 2.06

b)

Contribution = 8.28235*16000= 132517.6

Operating cash flow = 132517.6 - 76800

= 55717.6

Degree of operating leverage at 16000 units = 132517.6/55717.6

= 2.38

jeff jeffy answered 9 months ago

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At an output level of 17,000 units, you have calculated that the degree of operating leverage...

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