Miller Mfg. is analyzing a proposed project. The company expects to sell 17,100

Question

Miller Mfg. is analyzing a proposed project. The company expects to sell 17,100 units, give or take 2 percent. The expected variable cost per unit is $25 and the expected fixed cost is $41,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $36,000. The tax rate is 34 percent. The sale price is estimated at $29 a unit, give or take 2 percent.
What is the earnings before interest and taxes under the base case scenario?

Explanation / Answer

Computation of EBIT in the best case: (Taking 2%)

Note:

The sales units increase by 2 %

The variable costs decrease by 5 %

Fixed costs decrease by 5 %

Computation of EBIT in the second case: (Giving 2 %)

Particular Cost per unit Working Amount Sales value 17442 17442*29 505818 Less: Variable costs 25 17442*25(1-5%) 414248 Fixed cost 41000 Add: 5 % of increase 2050 Depriciation 36000 Total fixed cost 79050 Earning before interest and tax 12520

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