Southern Goods Is Analyzing a Proposed Project Using Standard Sensitivity

question 6

Multiple Choice

Southern Goods is analyzing a proposed project using standard sensitivity analysis.The company expects to sell 4,500 units,±11 percent.The expected variable cost per unit is $13 and the expected fixed costs are $12,000.Cost estimates are considered accurate within a ± 5 percent range.The depreciation expense is $5,000.The sale price is estimated at $22 a unit,±2 percent.
The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $18.Using this value,the earnings before interest and taxes will be:

• A)$10,500
• B)$6,000
• C)$2,500
• D)$5,500
• E)$8,500

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Definitions:

CPI

stands for Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Market Basket

A fixed set of goods and services whose total cost is used to track inflation and the cost of living over time through price changes.

CPI

The Consumer Price Index reflects the mean fluctuation in prices for a mix of consumer products and services, as experienced by urban buyers over time.

Inflation Rate

The increase percentage in the overall level of prices for goods and services in a country's economy over a period of time.