The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario

What is the sales revenue under the worst case scenario?
A) $60,600.75
B) $62,474.00
C) $73,500.00
D) $84,525.00
E) $87,060.75

Question

The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario

What is the sales revenue under the worst case scenario?

What is the sales revenue under the worst case scenario?
A) $60,600.75
B) $62,474.00
C) $73,500.00
D) $84,525.00
E) $87,060.75

Quizplus · Accepted Answer

The worst-case scenario for sales revenue involves selling the lowest number of units at the lowest price. The lowest number of units is 3,500 - (3,500 * 15%) = 2,975 units. The lowest sales price is $21 - ($21 * 3%) = $20.37 per unit. Therefore, the worst-case sales revenue is 2,975 units * $20.37 = $60,600.75.