Adept Company is analyzing a proposed project with annual sales of 5,200 units, ± 6 percent; variable costs per unit of $11, ± 3 percent; fixed costs of $17,500 per year, ± 3 percent; and a sales price of $22 per unit, ± 2 percent. The annual depreciation expense is $4,200. What is the annual sales revenue under the optimistic scenario?
Question
Adept Company is analyzing a proposed project with annual sales of 5,200 units, ± 6 percent; variable costs per unit of 17,500 per year, ± 3 percent; and a sales price of 4,200. What is the annual sales revenue under the optimistic scenario?
Solution
The optimistic scenario assumes the maximum values for all the variables.
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First, calculate the optimistic annual sales volume: 5,200 units + 6% of 5,200 units = 5,200 units + 312 units = 5,512 units.
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Then, calculate the optimistic sales price per unit: 22 = 0.44 = $22.44.
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Finally, calculate the optimistic annual sales revenue: 5,512 units * 123,629.28.
So, the annual sales revenue under the optimistic scenario is $123,629.28.
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