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Degree of Operating Leverage

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At an output level of 55,000 units, you calculate that the degree of operating leverage is 3.25. If output rises to 64,000 units, what will the percentage change in operating cash flow be? Will the new level of operating leverage be higher or lower?

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Solution Summary

Then solution explains how to calculate the new degree of operating leverage and change in operating cash flow given a change in output level.

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The degree of operating leverage gives the percentage in operating income (if all income is cash, then operating cash flow) for given percentage change in sales. If the operating leverage is 3.25, it implies that for 1% ...

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