Question

At an output level of 59,000 units, you calculate that the degree of operating leverage is 3.3. The output rises to 64,000 units. What will the percentage change in operating cash flow be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in OCF %

Answer 1

Answer: Percentage change OCF = 27.96%.

Explanation:

Given that,

Output level = 59,000 units

Degree of operating leverage = 3.3

Output rises to 64,000 units,

Degree of Leverage = $\frac{Percentage\ change\ in\ Operating\ cash\ Flow}{Percentage\ change\ in\ Quantity}$

Percentage change OCF = Degree of Leverage × Percentage change in Quantity

= $3.3 \times \frac{64000-59000}{59000} \times 100$

= 27.96%