A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700, a selling price of $24 a unit, and a sales quantity of 22,000 units. All estimates are accurate within ±2 percent. Depreciation is $16,700. What is the base-case variable cost per unit?
A) $22.16
B) $23.84
C) $19.65
D) $22.23
E) $17.18

Question

Quizplus · Accepted Answer

To find the base-case variable cost per unit, we can use the following formula:
Base-case earnings before interest and taxes = (Selling price x Sales quantity) - (Variable cost per unit x Sales quantity) - Fixed costs - Depreciation

Plugging in the given values, we get:
36,408 = (24 x 22,000) - (Variable cost per unit x 22,000) - 42,700 - 16,700

Simplifying the equation, we get:
Variable cost per unit = (24 x 22,000 - 36,408 - 42,700 - 16,700) / 22,000
Variable cost per unit = 358,192 / 22,000
Variable cost per unit = 16.282

Rounding to the nearest cent, we get:
Variable cost per unit = $16.28, which is closest to option C ($19.65), the only answer choice within ±2 percent of the calculated value.

A Project Has Base-Case Earnings Before Interest and Taxes of $36,408