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 amount of the total variable costs under the best case scenario?
A) $35,280
B) $36,720
C) $37,044
D) $37,918
E) $38,556

Question

Quizplus · Accepted Answer

Under the best case scenario, the company would sell 4,200 units (4,000 + 5% of 4,000). The variable cost per unit is expected to be $9, so the total variable costs would be:
4,200 units x $9 per unit = $37,800

However, cost estimates are accurate within plus or minus 2 percent. So the range of possible variable costs under the best case scenario is:
$37,800 x (1 - 2%) to $37,800 x (1 + 2%)
= $37,044 to $38,556

Therefore, the amount of total variable costs under the best case scenario is $37,044 (choice C).

The Alfonso Company Is Analyzing a Project with Expected Sales