The Creamery is analyzing a project with expected sales of3,800 units, give or take 5 percent. The expected variable cost per unit is $185 and the expected fixed costs are $364,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $104,000. The sales price is estimated at $305 per unit, give or take 4 percent. The tax rate is 35 percent. The company is conducting a sensitivity analysis with fixed costs of $360,000. What is the OCF given this analysis? $92,600 $85,350 $98,800 $74,874 $114,300

operation cash flow (OCF) is $98800

Explanation:

given data

number of units = 3800 units

variable cost = $185 per unit

fixed costs = $364,000

depreciation expense = $104,000

sales price = $305 per unit

tax rate = 35 %

fix cost = $360,000

to find out

what is the OCF given this analysis

solution

we know operation cash flow (OCF) is express as

OCF = [ { selling - variable cost) * no of units } - fixed cost ] * [ tax rate ] + [ deprecation * tax rate ] ... 1

put here all these value

OCF = [ { 305 - 185) * 3800 } - 360000 ] * [ 35% of income before tax ] + [ 104,000 * 0.35 ]

OCF = 96000 - 0.35*96000 + 36400

OCF = 62400 + 36400

OCF = $98800