Question

A proposed project has fixed costs of $47,000 per year. The operating cash flow at 11,000 units is $69,000. a. Ignoring the effect of taxes, what is the degree of operating leverage

Answer 1

Answer: 1.68

Explanation:

From the question, we are informed that a proposed project has fixed costs of $47,000 per year and that the operating cash flow at 11,000 units is $69,000.

Ignoring the effect of taxes, the degree of operating leverage will be:

= 1 + ($47,000/$69,000)

= 1 + 0.68

= 1.68