Question

The company expects to sell 12,000 units, plus or minus 5 percent. The expected variable cost per unit is $3.20 and the expected fixed costs are $30,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $24,000. The tax rate is 34 percent. The sales price is estimated at $7.50 a unit, plus or minus 4 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $31,000?

Answer 1

$21,756

Step-by-step explanation:

The computation of the operating cash flow is shown below:

= {Number of units sold × (sale price per unit - variable cost per unit) - total fixed costs} × ( 1 - tax rate) + (depreciation expense × tax rate)

= {12,000 units × ($7.50 - $3.20) - $31,000} × ( 1 - 0.34) + ($24,000 × 0.34)

= {12,000 units × $4.3 per unit - $31,000} × ( 1 - 0.34) + ($24,000 × 0.34)

= ($51,600 - $31,000) × ( 1 - 0.34) + ($24,000 × 0.34)

= $13,596 + $8,160

= $21,756