At an output level of 46,000 units, you calculate that the degree of operating leverage is 3.20. Suppose fixed costs are $130,000. What is the operating cash flow at 40,000 units? (Do not round intermediate calculations and round your final answer to the nearest whole number, e. g., 32.) Operating cash flow $

What is the new degree of operating leverage? (Do not round intermediate calculations and round your final answer to 3 decimal places, e. g., 32.161.) Degree of operating leverage

Operating cash flow for 40,000 units = $34,426.88

New degree of operating leverage = 4.776

Explanation:

Data provided in the question:

Output level = 46,000 units

Degree of operating leverage = 3.20

Fixed costs = $130,000

Now,

Operating leverage = (Contribution margin) : (Operating cash flow)

Also,

Contribution margin = Operating cash flow + Fixed costs

Thus,

3.20 = (Operating cash flow + Fixed costs) : (Operating cash flow)

or

3.20 = 1 + (Fixed costs) : (Operating cash flow)

or

Operating cash flow = $130,000 : 2.20

or

Operating cash flow = $59,090.91

contribution margin for 46,000 units = $59,090.91 + $130,000

= $189,090.91

and,

Contribution margin for 40,000 units = $189,090.91 * [ 40,000 : 46,000 ]

= $164,426.88

Therefore,

Operating cash flow for 40,000 units

= Contribution margin - Fixed costs

= $164,426.88 - $130,000

= $34,426.88

Now,

New degree of operating leverage = Contribution margin : Operating cash flow

= $164,426.88 : $34,426.88

= 4.776