Wilson’s Woods is considering a project which involves producing
inexpensive golf clubs for teenagers. The company expects to sell these clubs for $100 a set, plus or minus 2%. The sales manager estimates that 20,000 sets can be sold, plus or minus 5%.
What is the expected amount of sales under the worst case
scenario? 3: Scenario analysis
Sales for worst case scenario 20,000 (1 - .05) $100 (1 .02)
19,000 $98 $1,862,000 4: Scenario analysis
Bob’s Custom Wheels is considering designing and selling
customized steering wheels for hot rods. The projected fixed costs of this project are $18,000. Variable costs are estimated at $54.90 per wheel. The cost estimates are considered accurate within a plus or minus range of 5%. The depreciation expense is $8,000 per year. Bob’s expects to sell 1,500 wheels, plus or minus 3%. The sales price is estimated at $139.00, plus or minus 5%.
What is the projected earnings before interest and taxes under the best case scenario? 5: Scenario analysis
Kettle Corn and Chips is considering selling snack foods at
sporting events. The company has developed the following estimates: Sales 25,000 units 10% Variable cost $.59 per unit 5% Fixed cost $7,500 2% Selling price $1.25 per unit 5% Depreciation $1,000
What is the earnings before interest and taxes for a sensitivity
analysis using a variable cost of $.60 per unit? 7: Sensitivity analysis
The Sweet Shoppe is considering opening a kiosk and selling
homemade cookies on the waterfront during tourist season. The company has developed these estimates: Sales 6,000 cookies 20% Variable costs $.69 per cookie 4% Fixed costs $500 3% Sales price $1.10 5% Depreciation $800 Tax rate34% What is the operating cash flow for a sensitivity analysis using a sales quantity of 6,500 cookies? 9: Sensitivity analysis
= $43,350 + $1,700 = $45,050 13: Average vs. marginal cost
Daisy’s Flowers raises and sells 36,000 bouquets of fresh cut flowers each year. Total labor cost for the year are $68,000. Total material costs for the year are $28,470. Daisy’s computed that at the current level of production the labor cost per additional unit is $1.40 and the material costs are $2.09. Fixed costs for the year are $50,000. Annual depreciation is $55,000 on the greenhouses and equipment. Ignore taxes.
What is the average total cost per bouquet?
What is the minimum price Daisy’s should charge if they can obtain a one-time special order for an additional 250 bouquets? 14: Average vs. marginal cost
$68,000 $28,470 $50,000 $55,000
Average total cost 36,000 $5.60 (rounded )
Minimum price for one - time order $1.40 $2.09
$3.49 15: Contribution margin
Jack’s Custom Kars manufactures motorized toy cars for children
aged 3 to 6. Jack’s sells these cars for $320 each. The company has fixed monthly expenses of $1,500. The variable cost per car is $212. During an average month, Jack’s sells 20 of these toy cars.
What is the contribution margin per car sold?
16: Contribution margin
Contributi on margin Selling price - Variable cost per unit
$320 - $212 $108 17: Accounting break-even
You are considering a new project. The projections include a sales
price of $11.99, fixed costs of $7,500, depreciation of $2,400 and variable costs per unit of $6.20. Ignore taxes.
What is the accounting break-even level of production?
18: Accounting break-even
FC D Q P-v $7,500 $2,400 $11.99 $6.20 $9,900 $5.79 1,709.84 units 19: Accounting break-even
Katie’s Kites is considering a project with estimated fixed costs of
$2,100, depreciation expense of $900 and a sales quantity of 2,500 units. Ignore taxes.
What is the contribution margin per unit if the projected level of
sales is at the accounting break-even point? 20: Accounting break-even
FC D Q P-v $2,100 $900 2,500 Pv $2,100 $900 Pv 2,500 P v $1.20 21: Cash break-even
Pretzels N’ More is considering adding a new retail outlet. Fixed
costs are estimated at $160,000 per year. The forecasted sales price is $1.59 per pretzel. Variable costs per pretzel are $.79.
What is the cash break-even point for this new retail outlet? 22: Cash break-even
FC Q P-v $160,000 $1.59 $.79 $160,000 $.80 200,000 units 23: Cash break-even
Tight-Wad Willsen is reviewing a proposal that has fixed costs of
$12,500, depreciation expense of $5,400 and a contribution margin of $2.05.
Willsen wants to know how many units of this product will have to be sold so that his potential loss is limited to his initial investment. What should you tell him? 24: Cash break-even
FC Q P-v $12,500 $2.05 6,097.56 units 25: Financial break-even
You are considering a new project that has an operating cash flow of $22,600 when the net present value is equal to zero. At that level of sales, the selling price per unit is $14.95, the variable cost per unit is $8.60 and the fixed costs are $19,000.
What is the financial break-even sales quantity?
26: Financial break-even
FC OCFwhere NP V0 Q Pv $19,000 $22,600 $14.95 $8.60 $41,600 $6.35 6,551.18 units 27: Degree of operating leverage
A project has fixed costs of $2,500 and variable costs per unit of $10.15. The depreciation expense is $1,100. The operating cash flow is $6,400.
