Question

Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler-weather option. The tops would sell for $51 each with expected sales of 4,400 tops annually. By adding the fleece tops, management feels the firm will sell an additional 295 pairs of jeans at $63 a pair and 430 fewer T-shirts at $24 each. The variable cost per unit is $34 on the jeans, $14 on the T-shirts, and $29 on the fleece tops. With the new item, the depreciation expense is $31,000 a year and the fixed costs are $77,000 annually. The tax rate is 34 percent. What is the project's operating cash flow?

Answer 1

	Flee tops	Jeans	T-Shirts	Total
Units	4400	295	430
Selling Price per unit ($)	51	63	24
Variable cost per unit ($)	29	34	14
Sales	224400	18585	10320	253,305
Variable cost	127600	10030	6020	143650
Fixed costs				77000
Depreciation expense				31000
Pre tax profit				1655
Tax rate @34%				562.7
After tax profit				1092.3
Add: Depreciation expense				31000
project's operating cash flow				32092.3