Question

You manufactured 1,050 bikes and sold 1,000 of them for $200 each.

                Labor is 90/bike, material 60/bike. Rent is 15,000. No debt, hence no interest cost.

                Profits tax is 20%.

                What are (after-tax) profits?

                Calculate cash in and cash out.

                Assume all profits are paid to owners. What is net change in cash?

                Your starting balance sheet contained $100,000 in fixed assets and $30,000 in cash. Owners’ equity was                 the full 130,000. What does your new balance sheet look like?

Answer 1

Here cost of each bike = labor cost + material cost + = 90 + 60 = 150

Total profits = no. of bikes sold – cost of bikes sold – rental cost = [(200-150)*1,000] – 15,000

= $35,000

Hence after tax profit = profit*(1-tax rate) = $35,000*(1-20%)

= $28,000

Cash in = revenue amount = 1,000*200 = $200,000

Cash out = expenses + tax = (150*1,050 bikes manufactured) + 15,000 (rent) + 20% of 35000 (tax)

= $157,500 + 15,000 + 7,000

= $179,500

Net change in cash = cash in - cash out = 200,000 – 179,500 = $20,500

New balance sheet:

Cash = 30000+20500 = 50500

Inventory = 50*150 = 7500

Fixed assets will remain the same

Equity = 130,000 + 28,000 (profits) = 158,000