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Leopard Machinery is analyzing a proposed project. The company expects to sell 2,300 units, give or take 4 percent. The expected cash variable cost per unit is $260 and the expected fixed costs (not including depreciation) are $589,000. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, plus or minus 6 percent. What is the sales revenue under the worst-case scenario? What is the operating cash flow at worst-case sales revenue?

Respuesta :

Answer:

$551,074

Explanation:

Sales revenue

Worst case

Budget sales = 2300 units

Estimated sales price = $750

Sales unit = (100%-4%*2300)

2208 units

Sales price = (100%-6%*750)= 705

Sales revenue =2208*705 =$1,656,000

b) Operating cash flow at worst case sales revenue

Variable cost - $260 *(100%-5%)

=$247

Total variable cost = $247* 2208= $545,376

Fixed cost = $589000*(100%-5%)

$559550

Operating cash flow = (1656000-545376-559550) =551,074

The sales revenue would be $1,556,640 under the worst-case scenario. Thus, operating cost flow in this situation would be $451714.

Budget sales are expected as 2300 units and the estimated sales price is $750.

Here, the sales unit is computed as:

[tex]1-0.04*2300\\=2208[/tex]

Now, the sales price would be computed as:

[tex]1-0.06*750\\=705[/tex]

Hence, the sales revenue would be derived by multiplying sales units with sales price, that is;

[tex]2208*705\\=1556640[/tex]

Now to calculate the variable cost:

[tex](1-0.05)*260\\=247[/tex]

Thus, the total variable cost is determined as:

[tex]247* 2208\\=545,376[/tex]

Fixed cost is computed as follows:

[tex](1-0.05)*589000\\=559550[/tex]

Hence, operating cash flow would be calculated by deducting total variable cost and fixed cost from sales revenue, that is,

[tex]1,556,640-545376-559550\\=451714[/tex]

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