Ask Question
28 July, 12:43

A project has projected values of: unit sales = 1,650, price per unit = $19, variable cost per unit = $7, fixed costs per year = $4,700. The depreciation is $1,100 a year and the tax rate is 34 percent. What effect would a decrease of $1 in the variable cost per unit have on the operating cash flow? A.-$8.58 B. - $1,089 C. - $912 D. $1,089 E. $912

+2
Answers (1)
  1. 28 July, 15:59
    0
    Operating cash flow increases by

    Correct option is D $1,089

    Explanation:

    Current operating cash flow

    Sales - Costs = $19 X 1,650 = $31,350 - $11,550 - $4,700 - $1,100 = 14,000

    Now less: taxes = $14,000 X 34% = $4,760

    Net of taxes income = $14,000 - $4,760 = $9,240

    This is operating profit

    Operating cash flow = Operating profit + Depreciation = $9,240 + $1,100 = $10,340

    In case variable cost is decreased by $1 per unit then

    Sales - Costs = $19 X 1,650 = $31,350 - $9,900 - $4,700 - $1,100 = 15,650

    Now Less: Taxes = $15,650 X 34% = $5,321

    Income net of taxes = $15,650 - $5,321 = $10,329

    This is operating profit

    Operating cash flow = Operating profit + Depreciation = $10,329 + $1,100 = $11,429

    Change in operating cash flow = $11,429 - $10,340 = $1,089

    Since this value is $1,089 positive correct option is D
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A project has projected values of: unit sales = 1,650, price per unit = $19, variable cost per unit = $7, fixed costs per year = $4,700. ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers