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Homework answers / question archive / You manufacture face masks
You manufacture face masks. Sales are projected at 15,500 face masks per year over the next four years. It will cost you $44,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in four years, this equipment can be salvaged for $32,000. Your fixed production costs will be $65,000 per year, price per unit is $7, and your variable production costs should be $1.50 per unit ($0.50 per unit in variable material costs and $1 per unit in variable labor expense). You also need an initial investment in net working capital of $90,000. You require a return of 9 percent on your investment. Ignore taxes (tax rate is 0%).
Quantity sold is projected as 15,500. If the quantity sold increases by 20%, operating cash flow (OCF) increases by 84.20%. What is the degree of operating leverage at this quantity level?
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