Adept NV is analyzing a proposed project.The company expects to sell 2,500 units, give or take 10%.The expected variable cost per unit is €8 and the expected ﬁxed costs are €12,500.Cost
Estimates are considered accurate within a plus or minus 5% range.The depreciation expense is
€4,000.The sale price is estimated at €16 a unit, give or take 2%.The company bases its sensitivity
Analysis on the expected case scenario.What is the amount of the ﬁxed cost per unit under the
Pessimistic case scenario?

Question

Quizplus · Accepted Answer

To calculate the fixed cost per unit under the pessimistic scenario, we need to consider the lower end of the range for sales, variable cost per unit, and sale price, and the higher end of the range for fixed costs.
- Sales: 2,250 units (lower end of 10% range)
- Variable cost per unit: €7.60 (= €8 - 5% of €8)
- Sale price: €15.68 (= €16 - 2% of €16)
- Depreciation expense: €4,000
- Fixed costs: €13,125 (= €12,500 + 5% of €12,500)

Total cost = Fixed cost + Variable cost per unit x Sales + Depreciation expense
Total revenue = Sale price x Sales
Profit = Total revenue - Total cost

At breakeven, profit = 0:
Sale price x Sales = Fixed cost + Variable cost per unit x Sales + Depreciation expense
15.68 x 2,250 = 13,125 + 7.60 x 2,250 + 4,000
35,280 = 31,625
Therefore, the fixed cost per unit under the pessimistic scenario is €13,125/2,250 = €5.83.

Adept NV Is Analyzing a Proposed Project