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 contribution margin under the base case scenario?
A) $14.55
B) $14.82
C) $15.00
D) $15.45
E) $15.63

Question

Quizplus · Accepted Answer

Contribution margin per unit = Sales price per unit - Variable cost per unit
Contribution margin per unit = $21 - $6 = $15

Expected sales volume = 3,500 units
Expected sales revenue = 3,500 x $21 = $73,500
Expected variable costs = 3,500 x $6 = $21,000
Expected contribution margin = $73,500 - $21,000 = $52,500
Expected fixed costs = $15,500
Expected operating income = $52,500 - $15,500 - $6,000 = $31,000

Therefore, the contribution margin under the base case scenario is $15.00.
Based on the information given, it is not clear what the project is or what the company's goals are. Therefore, no best choice can be determined.