The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units,give or take 15%. 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 $18 a unit,give or take 2%. The company bases its sensitivity analysis on the expected case scenario. What is the contribution margin under the expected case scenario?
A) $8
B) $8.32
C) $10
D) $16
E) $18

Question

Quizplus · Accepted Answer

The contribution margin is calculated as the sale price per unit minus the variable cost per unit. In the expected case scenario, the sale price is $18 and the variable cost is $8, so the contribution margin is $18 - $8 = $10.