Isabelle Is Reviewing a Project with Projected Sales of 1,500

question 55

Multiple Choice

Isabelle is reviewing a project with projected sales of 1,500 units a year,a cash flow of $40 a unit and a 3-year project life.The initial cost of the project is $95,000.The relevant discount rate is 15 percent.She has the option to abandon the project after one year at which time she feels she could sell the project for $60,000.At what level of sales should she be willing to abandon the project?

• A)1,725.00 units
• B)1,882.01 units
• C)966.67 units
• D)922.67 units
• E)1,006.34 units

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Definitions:

Fixed Manufacturing Overhead Rate

A constant charge that represents the total fixed manufacturing overhead costs divided by the standard allocation base.

Variances

The difference between planned or expected financial outcomes and the actual results achieved, often analyzed in budgeting and cost control.

Direct Labor-Hours

The number of hours spent by workers producing a company's goods, a measure of direct labor input.

Standard Cost System

An accounting method where costs are predetermined for product costing, facilitating variance analysis between expected and actual costs.