Precise Machinery is analyzing a proposed project that is expected to sell 1,450 units, ±3 percent. The expected variable cost per unit is $139 and the expected fixed costs are $123,000. Cost estimates are considered accurate within a ±1 percent range. The depreciation expense is $39,000. The sales price is estimated at $349 per unit, ±3 percent. What is the contribution margin per unit under the best-case scenario?

Question

Dean Haynes

Business

14 February, 22:37

Precise Machinery is analyzing a proposed project that is expected to sell 1,450 units, ±3 percent. The expected variable cost per unit is $139 and the expected fixed costs are $123,000. Cost estimates are considered accurate within a ±1 percent range. The depreciation expense is $39,000. The sales price is estimated at $349 per unit, ±3 percent. What is the contribution margin per unit under the best-case scenario?

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Efrain · Answer 1

Unitary contribution margin in the best-case scenario = $221.86

Explanation:

Giving the following information:

The expected variable cost per unit is $139. Cost estimates are considered accurate within a ±1 percent range. The sales price is estimated at $349 per unit, ±3 percent.

In the best-case scenario, the variable cost is at its lower and the selling price is higher.

Unitary variable cost = 139*0.99 = 137.61

Selling price = 349*1.03 = 359.47

The contribution margin per unit is the difference between the selling price and the unitary variable cost:

Unitary contribution margin = selling price - unitary variable cost

Unitary contribution margin = 359.47 - 137.61 = $221.86