The Meldrum Co

question 23

Multiple Choice

The Meldrum Co. is analyzing a proposed project. The company expects to sell 3,000 units,give or take 15%. The expected variable cost per unit is $8 and the expected fixed costs are $12,500. Cost estimates are considered accurate within a plus or minus 5% range. The depreciation expense is $4,000. The sale price is estimated at $18 a unit,give or take 2%. The company bases its sensitivity analysis on the expected case scenario. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $17. Using this value,the earnings before interest and taxes will be:

• A) $7,500
• B) $8,000
• C) $10,500
• D) $14,000
• E) $23,500

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Definitions:

Statement of Comprehensive Income

A financial report that includes all changes in equity during a period except those resulting from investments by and distributions to owners.

Operating, Normal Business Activities

Transactions and events that directly affect the provision of goods or services to customers.

Statement of Financial Position

A financial statement that details an organization's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial health.

Retained Earnings

The portion of a company's profits that are kept or retained rather than distributed to shareholders or used to pay off debt.