Question

Q3) At an output level of 45,000 units, you calculate that the degree of operating leverage is 2.79. If output rises to 48,000 units, what will the percentage change in operating cash flow be

Answer 1

Answer:  18.6%

Explanation:

Degree of operating leverage =  % change in Operating cash flow / % change in output

% change in Output

= $\frac{48,000 - 45,000}{45,000}$

= 6.7%

Degree of operating leverage =  % change in Operating cash flow / % change in output

2.79 = % change in Operating cash flow/ 6.7%

% change in Operating cash flow = 2.79 * 6.7%

% change in Operating cash flow = 18.6%