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 sales revenue under the worst case scenario?
A) $64,980
B) $68,400
C) $71,820
D) $72,610
E) $75,600

Question

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 sales revenue under the worst case scenario?

What is the sales revenue under the worst case scenario?
A) $64,980
B) $68,400
C) $71,820
D) $72,610
E) $75,600

Quizplus · Accepted Answer

The worst-case scenario for sales revenue occurs when both the sales volume and the sale price are at their lowest estimates. The lowest sales volume is 4,000 units minus 5%, which is 3,800 units. The lowest sale price is $18 minus 5%, which is $17.10. Therefore, the worst-case sales revenue is 3,800 units * $17.10 = $64,980.

The Alfonso Company Is Analyzing a Project with Expected Sales