is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4 percent. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6 percent range. The depreciation expense is $30,000. The tax rate is 34 percent. The sale price is estimated at $14 a unit, give or take 5 percent. The company bases its sensitivity analysis on the expected case scenario. What is the earnings before interest and taxes (EBIT) under the optimistic case scenario

Crane Industries

a1) The variable cost per unit = $5.50

a2) The fixed costs per month = $775

Explanation:

a) Data and Calculations:

Month   Total Maintenance Costs   Total Machine Hours

January                $2,590                                 330

February                2,890                                 380

March                     3,490                                 530

April                       4,390                                  660

May                       3,090                                  530

June                      4,790                                  730

Using the High-Low Method:

Month   Total Maintenance Costs   Total Machine Hours

High:

June                      $4,790                                 730

Low:

January                $2,590                                 330

Difference           $2,200                                 400

Variable cost per unit = $5.50 ($2,200/400)

Fixed costs:

June  total costs = $4,790

June total units = 730

Total variable costs = $4,015 ($5.50 * 730)

Fixed costs = Total costs - total variable costs

= $775