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4 March, 13:35

Angie's expects annual sales of 2,400 units, ± 3 percent, of a new product at a price of $59 a unit, ± 2 percent. The expected variable cost per unit is $27.20, ± 2 percent, annual fixed costs are $32,500, and depreciation is $4,400 per year. What is the total annual expense per unit under the pessimistic scenario? Ignore taxes.

a. $41.70

b. $43.59

c. $42.51

d. $40.02

e. $44.55

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Answers (1)
  1. 4 March, 13:47
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    Option (b) is correct.

    Explanation:

    Variable cost = $27.20 (1 + 0.02)

    = $27.20 * 1.02

    = $27.74

    Cash fixed cost = annual fixed costs : [annual sales (1 - 0.03) ]

    = $32,500 : [2,400 (1 - 0.03) ]

    = 13.96

    Depreciation = Depreciation : [annual sales (1 - 0.03) ]

    = $4,400 : [2,400 (1 - 0.03) ]

    = 1.89

    Total annual expense per unit:

    = Variable cost + Cash fixed cost + Depreciation

    = $27.74 + 13.96 + 1.89

    = $43.59
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