A proposed project has fixed costs of $86,000 per year. The operating cash flow at 8,200 units is $93,800. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 8,200 to 8,700, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 8,200 to 8,700, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

A proposed project has fixed costs of $86,000 per year. The operating cash flow at 8,200 units is $93,800. Ignore the effect of taxes. a. What is the degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) b. If units sold rise from 8,200 to 8,700, what will be the new operating cash flow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If units sold rise from 8,200 to 8,700, what is the new degree of operating leverage? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Problem 11-13 Operating Cash Flow and Leverage [LO4]
A proposed project has fixed costs of $86,000 per year. The operating cash flow at
8,200 units is $93,800. Ignore the effect of taxes.
a. What is the degree of operating leverage? (Do not round intermediate calculations
and round your answer to 4 decimal places, e.g., 32.1616.)
b. If units sold rise from 8,200 to 8,700, what will be the new operating cash flow? (Do
not round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
c. If units sold rise from 8,200 to 8,700, what is the new degree of operating leverage?
(Do not round intermediate calculations and round your answer to 4 decimal
places, e.g., 32.1616.)
a. DOL
b. New OCF
c. New DOL

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Step 1: Introduction to CVP Analaysis

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Step 2: Calculation of degree of operating leverage

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Step 3: Calculation of contribution margin at 8,700units

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Step 4: Calculation of operating cash flow at 8,700 units

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Step 5: Calculation of degree of operating leverage at 8,700units

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