Question

Go Fly A Kite is considering making and selling custom kites in two sizes. The small kites would be priced at $10.70 and the large kites would be $23.70. The variable cost per unit is $5.15 and $11.30, respectively. Jill, the owner, feels that she can sell 2,700 of the small kites and 1,730 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $1,000. The tax rate is 40 percent. What is the annual operating cash flow?

Answer 1

Operating cash flow = $20,990

Step-by-step explanation:

Go Fly A Kite

Operating Cash Flow

small kites large kites Total

Sales Volume 2,700 1,730 4,430

Sales per unit $10.70 $23.70 -

Sales Revenue $28,890 $41,001 $69,891

Less: Variable expense $(13,905) $(19,549) $(33,454)

Contribution Margin $14,985 $21,452 $36,437

Less: Fixed expense $(2,120)

Net operating income $34,317

Therefore, operating cash flow = net operating income after tax + depreciation

operating cash flow = $34,317 × (1 - 0.40) + ($1,000 × 0.40)

Hence, operating cash flow = $20,590 + 400 = $20,990