Question

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, give or take 2 percent. What is the amount of the total costs per unit under the best case scenario?

Answer 1

Base Case:

Units Sold = 2,100
Variable Cost per unit = $260.00
Fixed Costs = $589,000

Best Case:

Units Sold = 2,100 + 5% * 2,100
Units Sold = 2,205

Variable Cost per unit = $260.00 - 4% * $260.00
Variable Cost per unit = $249.60

Fixed Costs = $589,000 - 4% * $589,000
Fixed Costs = $565,440

Total Costs = Variable Cost per unit * Units Sold + Fixed Costs
Total Costs = $249.60 * 2,205 + $565,440
Total Costs = $1,115,808

Total Costs per unit = Total Costs / Units Sold
Total Costs per unit = $1,115,808 / 2,205
Total Costs per unit = $506.04