The Outpost, a sole proprietorship currently sells short leather jackets for $369 each.The firm is considering selling long coats also.The long coats would sell for $719 each and the company expects to sell 820 a year.If the company decides to carry the long coat, management feels that the annual sales of the short jacket will decline from 1,120 to 1,040 units.Variable costs on the jacket are $228 and $435 on the long coat.The fixed costs for this project are $23,100, depreciation is $10,400 a year, and the tax rate is 34 percent.What is the projected operating cash flow for this project?

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Quizplus · Accepted Answer

The correct answer is A.The projected operating cash flow for this project is $134,546. This is calculated as follows:Sales revenue from short jackets = 1,040 units x $369 = $384,960Sales revenue from long coats = 820 units x $719 = $591,580Total sales revenue = $976,540Variable costs for short jackets = 1,040 units x $228 = $236,520Variable costs for long coats = 820 units x $435 = $356,700Total variable costs = $593,220Contribution margin = $976,540 - $593,220 = $383,320Fixed costs = $23,100Depreciation = $10,400Total fixed costs = $33,500Operating income = $383,320 - $33,500 = $349,820Taxes (34%) = $349,820 x 0.34 = $118,943Net income = $349,820 - $118,943 = $230,877Depreciation = $10,400Operating cash flow = $230,877 + $10,400 = $134,546

The Outpost, a Sole Proprietorship Currently Sells Short Leather Jackets