Donald and Sons manage a product with a 3.0 degree of operating leverage. Sales of the product are expected to increase by 10 percent next year. What is the expected change in the operating
Cash ﬂow for this product for next year?
A) 3.3 percent increase
B) 10 percent increase
C) 30 percent increase
D) 10 percent decrease
E) 30 percent decrease

Question

Quizplus · Accepted Answer

The formula to calculate the percentage change in operating cash flow is:

Percentage Change in Operating Cash Flow = Degree of Operating Leverage × Percentage Change in Sales

Substituting the values:

Percentage Change in Operating Cash Flow = 3.0 × 10% = 30%

Therefore, the expected change in the operating cash flow for this product for next year is a 30% increase, which is option C.

Donald and Sons Manage a Product with a 3