The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total fixed costs are $17,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity analysis is based on the most likely scenario.

What is the contribution margin under the best case scenario?
A) $9.00
B) $9.18
C) $9.90
D) $10.08
E) $10.26

Question

The Alfonso Company is analyzing a project with expected sales of 4,000 units, give or take 5 percent. The expected variable cost per unit is $9 and the expected total fixed costs are $17,000. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $3,000. The sale price is estimated at $18 a unit, give or take 5 percent. Sensitivity analysis is based on the most likely scenario.

What is the contribution margin under the best case scenario?

What is the contribution margin under the best case scenario?
A) $9.00
B) $9.18
C) $9.90
D) $10.08
E) $10.26

Quizplus · Accepted Answer

In the best case scenario, the sale price per unit would be at its highest and the variable cost per unit at its lowest. The sale price per unit at its highest is $18 + 5% = $18.90. The variable cost per unit at its lowest is $9 - 2% = $8.82. The contribution margin per unit under the best case scenario is $18.90 - $8.82 = $10.08.

The Alfonso Company Is Analyzing a Project with Expected Sales