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At an output level of 62,000 units, you calculate that the degree of operating leverage is...

At an output level of 62,000 units, you calculate that the degree of operating leverage is 3.70. Suppose fixed costs are $280,000. What is the operating cash flow at 56,000 units? (Do not round intermediate calculations and round your final answer to the nearest whole number, e.g., 32.) Operating cash flow $ What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 3 decimal places, e.g., 32.161.) Degree of operating leverage

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Answer #1

Operating leverage= Contribution margin/Operating cash flow

Contribution margin=Operating cash flow+Fixed costs

So, 3.7=(Operating cash flow+Fixed costs)/Operating cash flow

Operating cash flow=$280,000/2.7

Operating cash flow = $103703.7

So, contribution margin for 62,000 units=$103703.7+$280,000= $383703.7

Contribution margin for 56,000 units= $383703.7*56,000/65,000 =$346571.09

Operating cash flow for 56,000 units= Contribution margin-Fixed costs= $346571.09-$280,000= $66571

New degree of operating leverage= Contribution margin/Operating cash flow = $346571.09/$66571=5.206

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