Question

Leopard Machinery is analyzing a proposed project. The company expects to sell 2,300 units, give or take 4 percent. The expected cash variable cost per unit is $260 and the expected fixed costs (not including depreciation) are $589,000. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, plus or minus 6 percent. What is the sales revenue under the worst-case scenario? What is the operating cash flow at worst-case sales revenue?

Answer 1

Answer:

$551,074

Explanation:

Sales revenue

Worst case

Budget sales = 2300 units

Estimated sales price = $750

Sales unit = (100%-4%*2300)

2208 units

Sales price = (100%-6%*750)= 705

Sales revenue =2208*705 =$1,656,000

b) Operating cash flow at worst case sales revenue

Variable cost - $260 *(100%-5%)

=$247

Total variable cost = $247* 2208= $545,376

Fixed cost = $589000*(100%-5%)

$559550

Operating cash flow = (1656000-545376-559550) =551,074