Newton Industries is considering a project and has developed the following estimates: unit sales = 4,800, price per unit = $67, variable cost per unit = $42, annual fixed costs = $11,900.The depreciation is $14,700 a year and the tax rate is 34 percent.What effect would an increase of $1 in the selling price have on the operating cash flow?

Question

Quizplus · Accepted Answer

An increase of $1 in the selling price increases the contribution margin by $1 per unit. With 4,800 units sold, the increase in operating cash flow is 4,800 units * $1 * (1 - 0.34 tax rate) = $3,168.

Newton Industries Is Considering a Project and Has Developed the Following