Question

Go Fly A Kite is considering making and selling custom kites in two sizes. The small kites would be priced at $12.90 and the large kites would be $25.90. The variable cost per unit is $6.25 and $13.50, respectively. Jill, the owner, feels that she can sell 3,800 of the small kites and 2,060 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $2,100. The tax rate is 35 percent. What is the annual operating cash flow?

Multiple Choice

• $31,651

• $35,115

• $33,764

• $17,778

• $32,386

Answer 1

Ans : Annual Operating Cash flows = $ 32,386

Explanation

Particulars	Amount
Sales Revenue
Small Kites (3800 units * $12.90)	$49,020.00
Large Kites (2060 units * $25.9)	$53,354.00
Less: Variable Cost
Small Kites (3800 units * $6.25)	($23,750.00)
Large Kites (2060 units * $13.50)	($27,810.00)
Less : Fixed Cost	($2,120.00)
Less: Depreciation	($2,100.00)
Profit before tax	$46,594.00
Less: Tax@35%	($16,307.90)
Profit After tax	$30,286.10
Add: Depreciation (Note 1)	$2,100.00
Operating Cash flows	$32,386.10

Note : Depreciation is a non cash cash expense. Therefore, it will be added back to the profits in order to calculate the Operating Cash Flows.