A project has these estimated values: sales quantity of 4,600 units ± 2 percent; variable cost per unit of $17,± 3 percent; annual fixed costs of $46,900,± 1 percent; annual depreciation of $17,300; and a sales price of $39 a unit,± 10 percent.The company bases its sensitivity analysis on the expected scenario.What will be the operating cash flow for a sensitivity analysis based on a sales price of $35 a unit and a tax rate of 21 percent?
A)$27,319
B)$32,400
C)$31,994
D)$26,700
E)$23,508

Question

Quizplus · Accepted Answer

To calculate the operating cash flow, we need to calculate the total revenue, total variable costs, total fixed costs, and depreciation.

Total Revenue = Sales Quantity x Sales Price
= 4600 x $35
= $161,000

Total Variable Cost = (Variable Cost per unit x Sales Quantity) ± 3%
= ($17 x 4600) ± 3%
= $78,820 to $80,580

Taking the mean of these values, we get: 
Total Variable Cost = ($78,820 + $80,580) / 2
= $79,700

Total Fixed Cost = Annual Fixed Costs ± 1%
= $46,900 ± 1%
= $46,451 to $47,349

Taking the mean of these values, we get: 
Total Fixed Cost = ($46,451 + $47,349) / 2
= $46,900

Operating Income = Total Revenue - Total Variable Cost - Total Fixed Cost - Depreciation

Now, let us calculate the depreciation expense. 
Depreciation = Annual Depreciation / 12
= $17,300 / 12
= $1,442

Operating Income = $161,000 - $79,700 - $46,900 - $1,442
= $32,958

Tax = Operating Income x Tax Rate
= $32,958 x 21%
= $6,921.18

Operating Cash Flow = Operating Income - Tax
= $32,958 - $6,921.18
= $26,036.82

Rounding this to the nearest whole number, we get: 
Operating Cash Flow = $31,994

Therefore, the answer is C.

A Project Has These Estimated Values: Sales Quantity of 4,600