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A proposed project has fixed costs of $43,000 per year. The operating cash flow at 8,000...

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Finance

A proposed project has fixed costs of $43,000 per year. Theoperating cash flow at 8,000 units is $78,000.

Required:

(a) Ignoring the effect of taxes, what is the degree ofoperating leverage?

(b) If units sold rise from 8,000 to 8,500, what will be theincrease in operating cash flow?

(c) What is the new degree of operating leverage?

Answer & Explanation Solved by verified expert
3.8 Ratings (662 Votes)
a The degree of operating cash flow can be computed by using the below formula contribution margin operating income contribution margin operating income Fixed cost 78000 43000 121000 Operating Income 78000 So our degree of operating leverage would be    See Answer
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Transcribed Image Text

A proposed project has fixed costs of $43,000 per year. Theoperating cash flow at 8,000 units is $78,000.Required:(a) Ignoring the effect of taxes, what is the degree ofoperating leverage?(b) If units sold rise from 8,000 to 8,500, what will be theincrease in operating cash flow?(c) What is the new degree of operating leverage?

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