Project B will result in unit sales of 2,000, at a price of $600 each. The varia

Question

Project B will result in unit sales of 2,000, at a price of $600 each. The variable cost (VC) of each unit is $300. The cost accountant will allocate overhead on the existing plant to Project B at a rate of $21 per unit. A special piece of equipment must be leased for $67,000 per year for purposes related solely to Project B. Project B will reduce sales of the same company’s Project A by 650 units (selling price of $900 with VC of $480 and overhead allocation of $32 per unit). What is the total incremental cash flow for Project B?

$197,200
$260,000
$262,250
$306,200
$327,000

Explanation / Answer

Sales revenue $ 1,200,000 2000*600 Less: Variable costs $     600,000 2000*300 Contribution loss $     273,000 650*(900-480) Equipment lease $        67,000 Incremental cash flows $     260,000

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