Answer:
Ignoring the effect of taxes, what is the degree of operating leverage?
If units sold rise from 9,100 to 9,500, what will be the increase in operating cash flow?
what is the new degree of operating leverage?
Explanation:
degree of operating leverage = (units sold x contribution margin) / [(units sold x contribution margin) - fixed costs]
(units sold x contribution margin) - fixed costs] = $102,900
units sold x contribution margin = $102,900 + $83,000 = $185,900
degree of operating leverage = $185,900 / $102,900 = 1.81
contribution margin = $185,900 / 9,100 = $20.4286
operating cash flow (at 9,500 units) = (9,500 x $20.4286) - $83,000 = $111,071.43
operating cash flow will increase by $8,171.43 or 7.94%
new degree of operating leverage = $194,071.43 / $111,071.43 = 1.75
