Given the following data, what is the cashflow from selling, ignoring tax? [table]
Item selling price | $1,000 Cost of raw materials | $150 Cash Manufacturing cost | $300 Equipment depreciation | $150
[/table]

Question

BlackTom AI · Accepted Answer

To evaluate the cash flow from selling, ignore non-cash items such as depreciation and focus on cash inflows and cash outflows.
First, identify the cash inflow: the selling price is 1,000, which is the amount received from selling the item in cash.
Next, determine the cash outflows directly tied to producing or purchasing the item: raw materials cost is 150 (cash cost), and cash manufacturing cost is 300 (also a cash cost). The depreciation of 150 is a non-cash expense and does not affect cash flow, so it should not be subtracted.
Compute the net cash flow: 1,000 (inflow) minus (150 + 300) = 1,000 minus 450 equals 550.
Now examine the answer choices:
- Option a. 850 would imply subtracting only 150 or overlooking one cash cost, which misaccounts for total cash outlays.
- Option b. 550 matches the calculation 1,000 − (150 + 300) with depreciation ignored, which aligns with cash-flow-from-sale logic.
- Option c. 1,000 would ignore all costs, treating the transaction as revenue without expenses, which is incorrect for cash flow.
- Option d. 400 would come from subtracting 600 in cash costs, which does not reflect the given materials and labor figures.
- Option e. 700 would suggest subtracting only 300 or misallocating the costs, which again misrepresents the cash outlays involved.
In summary, the correct cash flow from selling, ignoring tax and non-cash depreciation, is 1,000 minus (150 + 300) = 550, which corresponds to option b.

ENG4802 S1 2025 Quiz: Topic 1 Financial Statements

Given the following data, what is the cashflow from selling, ignoring tax? [table] Item selling price | $1,000 Cost of raw materials | $150 Cash Manufacturing cost | $300 Equipment depreciation | $150 [/table]

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