CC's is analyzing a project with anticipated annual sales of 3,620 units,± 5 percent; a sales price of $24,± 2 percent; variable costs per unit of $14.60,± 4 percent; and annual fixed costs of $12,900,± 1 percent.What will be the annual total variable costs given a sensitivity analysis using a variable cost of $16 a unit?
A)$53,470
B)$54,900
C)$55,500
D)$57,920
E)$61,050

Question

Quizplus · Accepted Answer

From the given data, we can calculate the maximum and minimum limits of the total variable costs as follows:

Maximum limit:
= (3,620 units + 5%) x ($24 + 2%) x ($14.60 + 4%)
= 3,801.05 x 24.48 x 15.184
= $14,136,418.27

Minimum limit:
= (3,620 units - 5%) x ($24 - 2%) x ($14.60 - 4%)
= 3,438.95 x 23.52 x 14.0144
= $12,494,804.37

Now, if we use a variable cost of $16 a unit, we can calculate the total variable cost as follows:

Total variable cost = 3,620 units x $16
= $57,920

Since $57,920 falls within the range of the total variable costs calculated using the sensitivity analysis, the best choice is D.

CC's Is Analyzing a Project with Anticipated Annual Sales of 3,620