Question

The Jordan Company is considering purchasing a new machine which will have fixed costs of $100,000 per year. The operating cash flow at a production level of 10,000 units is $400,000. If units sold increase from 10,000 to 15,000 units, what will the operating cash flow be at the 15,000 unit level

Answer 1

$650,000

Step-by-step explanation:

Operating cash flow = Total sales - Total variable cost - Fixed cost

Operating cash flow = Contribution - Fixed cost

Contribution = Total sales - Total variable cost. Let x be the contribution per unit

For 10,000 units

400,000 = 10,000x - 100,000

x = 500,000/10,000

x = 50

Contribution per unit = $50

Fore 15,000 units

Operating cash flow = 15,000(x) - 100,000

Operating cash flow = 15,000(50) - 100,000

Operating cash flow = 750,000 - 100,000

Operating cash flow = $650,000