Question

Sales are projected at 15,500 hand sanitizer per year over the next four years. It will cost you $44,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in four years, this equipment can be salvaged for $32,000. Your fixed production costs will be $65,000 per year, price per unit is $7, and your variable production costs should be $1.50 per unit ($0.50 per unit in variable material costs and $1 per unit in variable labor expense). You also need an initial investment in net working capital of $90,000. You require a return of 9 percent on your investment. Ignore taxes (tax rate is 0%). You believe that estimates for units sales, unit price, unit variable costs and fixed costs are accurate only to within ±15 percent.

Which of the following is true?

For the best-case scenario, fixed costs is $74,750

For the worst-case scenario, variable cost is $1.28.

For the worst-case scenario, selling price per unit is $7.

For the worst-case scenario, sales units are 13,175 hand sanitizer.

For the best case scenario, selling price per unit is $7.70

Answer 1

AS you can see option4 is correct according to given scenarios and values.