Question

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, e.g., 32.16.)

c. What will the operating cash flow be if output falls to 17,000 units? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

a.

Which means, in the absence of Depreciation and taxation, EBIT = Operating cash flow

putting the values

Therefore,

Contribution = $97,650

And,

Thus,

Fixed Cost = $ 51,150

b)

Thus, Operating cash flow would be if output rises to 19,000 units

At 19,000 units, Operating cash flow would be $51,925

c)

Operating cash flow would be if output falls to 17,000 units

At 17,000 units, Operating cash flow would be $41,075

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.