At an output level of 415,400 units, you have calculated that the degree of operating leverage is 2.00. The operating cash flow is $58,000 in this case. Ignore the essect of taxes. What will be the new degree of operating leverage for output levels of 16,400 units and 14,400 units

the new degree of operating leverage for output levels of 16,400 units and 14,400 units will be -0.0858  and - 0.0745 respectively.

Explanation:

From the given information:

the degree of operating the leverage at 415,400 units =

where contribution margin = 2 × 58000 =116000

If we assume that the sales price should be p and the variable cost  be q per unit .

Then, 415,400p - 415,400q = 116000

p - q =

p - q = 0.279  at 415400 unit

Contribution margin = 415400 × 0.279

Contribution margin = 115896.6

The operating income = contribution margin - fixed expense

58000 = 115896.6 - fixed expense

fixed expense = 115896.6 - 58000

fixed expense = 57896.6

However, when the output level is 16400 unit,

the contribution margin = 16400(p-q)

the contribution margin =  16400(0.279)

the contribution margin = 4575.6

The operating leverage =

The operating leverage =

The operating leverage =

The operating leverage = -0.0858

when the output level is 14400 unit,

the contribution margin = 14400(p-q)

the contribution margin =  14400(0.279)

the contribution margin = 4017.6

The operating leverage =

The operating leverage =

The operating leverage =

The operating leverage = - 0.0745

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