Question

At an output level of 18,500 units, you have calculated that the degree of operating leverage...

At an output level of 18,500 units, you have calculated that the degree of operating leverage is 3.20. The operating cash flow is $48,000 in this case. Ignore the effect of taxes. What will be the new degree of operating leverage for output levels of 20,500 units and 17,000 units? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

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Answer #1

Degree of operating leverage = Contribution margin/operating income

3.2 = Contribution/48000

contribution= 48000 x 3.2

153600

Also, Fixed cost = Contribution- Operating income

153600-48000

105600

Contribution per unit= 153600/18590

8.302702703

Units 20500 17000

Total contribution margin =contribution p.u. x units 170205.4054 141145.9459

Less: Fixed cost( it remains same at all operating levels) 105600 105600

Operating income= 64605.40541 35545.94595

DOL= 2.634538153 3.97080292

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