At an output level of 17,500 units, you have calculated that the degree of operating leverage is 3.40. the operating cash flow is $59,000 in this case. ignore the effect of taxes. what will be the new degree of operating leverage for 18,500 units and 16,500 units?

new degree of operating leverage = 3.009

new degree of operating leverage = 3.97

Explanation:

given data

output level X = 17,500 units

operating leverage = 3.40

operating cash flow = $59,000

solution

we will apply here operating leverage equation that is

operating leverage =   ..........1

here we X is output level

and we consider here

(P-V)*X =T         ....................2

so equation 1 will as here as

3.4 =

T = 3.4 T - 3.4 FC

so

2.4 T = 3.4 FC

so now put T here from equation 2

so

now for operating leverage for X =  18,500  units

new degree of operating leverage

new degree of operating leverage =

put here

new degree of operating leverage =

new degree of operating leverage = 3.009

and

now for operating leverage for X =  16,500  units

new degree of operating leverage

new degree of operating leverage =

put here

new degree of operating leverage =

new degree of operating leverage = 3.97

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