Asked by Fazena Jaikaran on May 08, 2024
Verified
The Franklin Co. is analyzing a proposed project. The company expects to sell 3,500 units, give or take 15 percent. The expected variable cost per unit is $6 and the expected fixed costs are $15,500. Cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $6,000. The sales price is estimated at $21 a unit, give or take 3 percent. The company bases their sensitivity analysis on the base case scenario What is the contribution margin under the base case scenario?
A) $14.55
B) $14.82
C) $15.00
D) $15.45
E) $15.63
Contribution Margin
The amount by which the sales revenue of a product exceeds its variable costs, indicating how much contributes to covering its fixed costs and generating profit.
Variable Cost
Costs that change in proportion to the good or service that a business produces, varying depending on production volumes.
Fixed Costs
Fixed costs refer to expenses that do not change with the level of goods or services produced by the business within a certain range of activity or over a certain period.
- Evaluate and understand the role of contribution margin within financial examination.
Verified Answer
KR
Konner RowanMay 15, 2024
Final Answer :
C
Explanation :
The contribution margin is calculated as the sales price per unit minus the variable cost per unit. In the base case scenario, the sales price is $21 and the variable cost is $6. Therefore, the contribution margin is $21 - $6 = $15.00.
Learning Objectives
- Evaluate and understand the role of contribution margin within financial examination.