The Meldrum Co.expects to sell 3,000 units,± 15 percent,of a new product.The variable cost per unit is $8,± 5 percent; annual fixed costs are $12,500,± 5 percent; annual depreciation is $4,000; and the sale price is $18 a unit,± 2 percent.What is the amount of the fixed cost per unit under the pessimistic scenario?

Question

Quizplus · Accepted Answer

Pessimistic scenarios typically involve the worst-case scenario or the lowest expected values. In this case, the pessimistic scenario involves the lowest expected variable cost per unit and the highest expected fixed costs.

Variable cost per unit = $8 - 5% of $8 = $7.60
Fixed costs = $12,500 + 5% of $12,500 = $13,125

Total costs = $7.60 per unit * 3,000 units + $13,125 = $35,925
Fixed cost per unit = $13,125 / 3,000 units = $4.375 or approximately $5.15 when rounded to the nearest cent.

Therefore, the best choice is C.