The Adept Co. 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:
A) $21,375
B) $22,500
C) $23,625
D) $24,125
E) $24,750

Question

Quizplus · Accepted Answer

The expected variable cost per unit is $8, but the company is conducting a sensitivity analysis using a variable cost of $9. Given that the cost estimates are considered accurate within a plus or minus 5% range, we can calculate the range of variable costs as follows:

Expected variable cost range = $8 ± ($8 x 0.05) = $7.60 to $8.40

Variable cost used in sensitivity analysis = $9

To determine the total variable cost estimate, we need to multiply the number of units sold by the variable cost per unit:

2,500 units x $9 per unit = $22,500

Therefore, the best choice is B, as it represents the total variable cost estimate based on the given information.