Answer:
1.99; 2.22
Explanation:
Given that,
At output level of 18,500 units,
Degree of operating leverage = 2.10
Operating cash flow = $44,000
For solving this question we need to follow the following relationship between the degree of operating leverage and earnings before interest and taxes and the contribution margin:
Degree of operating leverage = Contribution margin ÷ operating income
2.10 = Contribution margin ÷ $44,000
2.10 × $44,000 = Contribution margin
$92,400 = Contribution margin
Now, we can get the total fixed costs by simply multiplying the contribution margin with the number of units.
Total fixed costs = Number of units × Contribution margin
= 18,500 × $92,400
= $1,709,400,000
At an output level of 19,500,
Total fixed costs = Number of units × Contribution margin
New Contribution margin = Total fixed costs ÷ Number of units
= $1,709,400,000 ÷ 19,500
= $87,662
Degree of operating leverage:
= Contribution margin ÷ operating income
= $87,662 ÷ $44,000
= 1.99
At an output level of 17,500,
Total fixed costs = Number of units × Contribution margin
New Contribution margin = Total fixed costs ÷ Number of units
= $1,709,400,000 ÷ 17,500
= $97,680
Degree of operating leverage:
= Contribution margin ÷ operating income
= $97,680 ÷ $44,000
= 2.22
