Question

HiLo Mfg. is analyzing a project with anticipated sales of 7,400 units, plus or minus 2 percent. The variable cost per unit is $11 /- 3 percent and the expected fixed costs are $267,000 plus or minus 2 percent. The sales price is estimated at $60 a unit, plus or minus 4 percent. The depreciation expense is $67,000 and the tax rate is 32 percent. What is the earnings before interest and taxes under the base-case scenario

Answer 1

$28,600

Step-by-step explanation:

The computation of the earning before interest and taxes in case of the base-case scenario

Sales $444,000 (7,400 units × $60)

Less: Variable cost - $81,400 (7,400 units × $11)

Fixed cost - $267,000

Depreciation expense - $67,000

Earning before interest and taxes $28,600

We simply deduct the depreciation expense, fixed cost and the variable cost from the sales revenue so that the Earning before interest and taxes could come