The Outpost 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?

Question

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 long coats = 820 units x $719 per unit = $590,580Sales revenue from short jackets = 1,040 units x $369 per unit = $384,960Total sales revenue = $590,580 + $384,960 = $975,540Variable costs on long coats = 820 units x $435 per unit = $356,100Variable costs on short jackets = 1,040 units x $228 per unit = $237,120Total variable costs = $356,100 + $237,120 = $593,220Contribution margin = $975,540 - $593,220 = $382,320Fixed costs = $23,100Depreciation = $10,400Total fixed costs = $23,100 + $10,400 = $33,500Operating income = $382,320 - $33,500 = $348,820Taxes (34%) = $348,820 x 0.34 = $118,615Net income = $348,820 - $118,615 = $230,205Depreciation = $10,400Operating cash flow = $230,205 + $10,400 = $134,546

The Outpost Currently Sells Short Leather Jackets for $369 Each