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Fig Newton Industries is considering a project and has developed the following estimates: unit sales = 7,525, price per unit = $149, variable cost per unit = $91, fixed costs = $216,400. The depreciation is $94,700 a year and the tax rate is 43 percent. What effect would an increase of $1 in the selling price have on the operating cash flow

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Answer:

Effect on income= 4,289.25 increase

Explanation:

Giving the following information:

Units sold= 7,525

Tax rate is 43 percent.

Increase in the selling price= $1

If all costs remain constant, we need to calculate the increase in contribution margin and the tax effect.

Effect on income:

Contribution marin= 7,525*1= 7,525

Tax= 7,525*0.43= (3,235.75)

Effect on income= 4,289.25 increase

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