Question

Item 22 Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $49 each with expected sales of 3,600 tops annually. By adding the fleece tops, management feels the firm will sell an additional 215 pairs of jeans at $59 a pair and 350 fewer T-shirts at $20 each. The variable cost per unit is $27 on the jeans, $11 on the T-shirts, and $23 on the fleece tops. With the new item, the depreciation expense is $29,000 a year and the fixed costs are $64,000 annually. The tax rate is 40 percent. What is the project's operating cash flow

Answer 1

Answer:

the project's operating cash flow is $117,485

Explanation:

Operating Cash flow is the cash resulting from a Company`s trading activities. This excludes finance charges, income taxes and depreciation.

Calculation of project's operating cash flow

Fleece - Top Sales ($49 x 3,600 tops)     $176,400

Jean Sales ($59 x 215 pairs)                       $12,685

T - Shirt Sales ($20 x 350)                            $7,000

Total Sales Revenue                                 $196,085      

Less Variable Costs

Jeans ($27 x 215 pairs)                              ($5,805)

T - Shirts ($11 x 350)                                   ($3,850)

Fleece - Top ($23 x 215 pairs)                   ($4,945)

Contribution                                               $181,485

Less Fixed Costs                                       ($64,000)

Operating Cash flow                                 $117,485

Conclusion :

the project's operating cash flow is $117,485.