Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 6,400 pairs of sunglasses at a price of $159 each and a variable cost of $111 each. The equipment necessary for the project will cost $335,000 and will be depreciated on a straight-line basis over the 7-year life of the project. Fixed costs are $250,000 per year and the tax rate is 40 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.