At an output level of 15,400 units, you have calculated that the degree of opera

Question

At an output level of 15,400 units, you have calculated that the degree of operating leverage is 2.00. The operating cash flow is $58,000 in this case. Ignoring the effect of taxes, what are fixed costs? What will the operating cash flow be if output rises to 16,400 units. What will the operating cash flow be if output falls to 14,400 units? Please show steps. At an output level of 15,400 units, you have calculated that the degree of operating leverage is 2.00. The operating cash flow is $58,000 in this case. Ignoring the effect of taxes, what are fixed costs? What will the operating cash flow be if output rises to 16,400 units. What will the operating cash flow be if output falls to 14,400 units? Please show steps.

Explanation / Answer

Degree Of Operating Leverage = Contribution /EBIT

2 = Contribution / 58000

Or Contribution = 58000 * 2 = 116000

Fixed Cost = Contribution - Operting Cash Flow = 116000 - 58000 = $58000

Fixed Cost will remain the same , only contribution changes with sales

At 16400 units, contribution = 116000 / 15400 * 16400 = 123532

Hence Operating Cash Flow = 123532 - 58000 = 65532

At 14400 units , contribution = 116000 / 15400 * 14400 = 108468

Hence Operating Cash Flow = 108468 - 58000 = 50468

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