Problem:
At an output level of 16,500 units, you have calculated that the degree of operating leverage is 2.80. The operating cash flow is $63,500 in this case. Ignoring the effect of taxes, what are fixed costs?
Required:
Question 1: What will the operating cash flow be if output rises to 17,500 units?
Question 2: What will the operating cash flow be if output falls to 15,500 units?
Note: Provide support for rationale.