Question

Windows and More is reviewing a project with sales of 6,200 units, ±2 percent, at a sales price of $29, ±1 percent, per unit. The expected variable cost per unit is $11, ±3 percent, and the expected fixed costs are $87,000, ±1 percent. The depreciation expense is $68,000 and the tax rate is 21 percent. What is the net income under the worst-case scenario?

Answer 1

Answer:

Net income  -$39,713

Explanation:

The computation of the net income is shown below:

Sales     $174,442      {6,200 × (1 - 2%) × $29 × (1 - 1%)}

Less:

Variable cost $68,841        {6,200 × (1 - 2%) × $11 × (1 + 3%)}

Fixed cost  $87,870                         {$87,000 × (1 + 1%)}

Depreciation expense $68,000

Earning before interest and taxes - $50,269

Less: Income tax expense at 21%   -$10,557

Net income  -$39,713

We simply deduct all the expenses from the sales revenue so that the net income could come