Miller Mfg. is analyzing a proposed project. The company expects to sell 12,000
ID: 2680896 • Letter: M
Question
Miller Mfg. is analyzing a proposed project. The company expects to sell 12,000 units, plus or minus 3 percent. The expected variable cost per unit is $8.00 and the expected fixed cost is $35,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $31,000. The tax rate is 34 percent. The sale price is estimated at $12.00 a unit, give or take 5 percent.What is the net income under the worst case scenario?
a) $-20,822.21
b) $-42,275.39
c) $-31,548.80
d) $-43,966.41
e) $-43,543.65
Explanation / Answer
Sales unit best case is 12000 units x .97= 11640 units Sales = Unit x Price = 11640 units best case x 12= 139680 Variable cost = 8320 units x 10.45 variable cost best case= 86944 Variable cost worst case is $ 8 *1.04= $ 8.32 Fixed cost $ 35000 Depreciation 31000 now find the following in given sequence 1)Total Cost 2)Net income before tax Tax 34% 3)Income after tax add: depreciation 68000 4)Cash flow generated is $-31,548.80