Question

Michael’s is considering a project that has projected sales of 4,200 units ± 5 percent, a sales price per unit of $50 ± 4 percent, variable costs per unit of $25 ± 5 percent, and fixed costs per year of $45,000 ± 3 percent. The depreciation expense is $11,000 per year and the tax rate is 33 percent. What is the annual net income under the best case scenario?

Answer 1

Normal Case:

Sales Volume = 4,200 units
Selling Price per unit = $50.00
Variable Cost per unit = $25.00
Fixed Costs = $45,000

Best Case:

Sales Volume = 4,200 + 5.00% * 4,200
Sales Volume = 4,410 units

Selling Price per unit = $50.00 + 4.00% * $50.00
Selling Price per unit = $52.00

Variable Cost per unit = $25.00 - 5.00% * $25.00
Variable Cost per unit = $23.75

Fixed Costs = $45,000 - 3% * $45,000
Fixed Costs = $43,650