Question

If a firm's variable cost per unit estimate used in its base case analysis is $50 per unit and they anticipate the upper and lower bounds to be +/- 10%, What is the "worst case" for variable cost per unit?

Answer 1

Answer:

$55 is the most worst case

Explanation:

The most worst case would be the increase in the variable cost and here we have highes upper bound of 10% which shows that if the varaible cost per unit increases by the 10 percent then it would be most worst case. So here the increase in the variable cost per unit would be:

Increase in Variable cost per unit = $50 * 10% = $5 and the total variable cost per unit would be $55 per unit.