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.The company conducts a sensitivity analysis using a
Variable cost of €9.The total variable cost estimate will be:

Question

Quizplus · Accepted Answer

First, we need to calculate the expected case scenario for total revenue, total variable costs, and total contribution margin.

Expected case scenario:
Total revenue = 2,500 units x €16 = €40,000
Total variable costs = 2,500 units x €8 = €20,000
Total contribution margin = €40,000 - €20,000 = €20,000

Next, we can use the high and low estimates for the sale price and unit sales to calculate the best and worst case scenarios for total revenue, total variable costs, and total contribution margin.

Best case scenario:
Total revenue = 2,750 units x €16.32 = €44,880
Total variable costs = 2,750 units x €8 = €22,000
Total contribution margin = €44,880 - €22,000 = €22,880

Worst case scenario:
Total revenue = 2,250 units x €15.68 = €35,280
Total variable costs = 2,250 units x €8 = €18,000
Total contribution margin = €35,280 - €18,000 = €17,280

Finally, we can calculate the sensitivity analysis for total variable costs by using the variable cost of €9.

Sensitivity analysis:
Total variable costs = 2,500 units x €9 = €22,500
Total contribution margin = €40,000 - €22,500 = €17,500

Therefore, the answer is B) €22,500 as the total variable cost estimate.

Adept NV Is Analyzing a Proposed Project