Question

Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $68,000. The tax rate is 32 percent. The sales price is estimated at $64 a unit, plus or minus 3 percent. What is the earnings before interest and taxes under the base case scenario?

Answer 1

Income before interest and taxes= $111,985.2

Step-by-step explanation:

Answer 2

Income before interest and taxes= $111,985.2

Step-by-step explanation:

Giving the following information:

The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000.

The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range.

The depreciation expense is $68,000.

The tax rate is 32 percent.

The sales price is estimated at $64 a unit, plus or minus 3 percent.

The best-case scenario is the one where the maximum amount of units is sold at a higher price and with the lowest costs.

Best-case scenario:

Units sold= 8000*1.02= 8160 units

Price= $64*1.03= $65.92

Variable cost= 11*0.95= $10.45

Fixed cost= 287000*0.95= 272,650

Sales= 8160* 65.92= 537,907.2

Total variable cost= 85272

Total fixed cost= 272650

Net operating income= 179,985.2

Depreciation= 68000

Income before interest and taxes= $111,985.2