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

Explanation:

Variable cost of production is the portion of production cost that varies with production amount. In addition to fixed cost it gives total cost of production.

Since there is a +-10% boundary for variable cost. The worst case in terms of high variable cost is 100%+10%= 110%

So worst price = 1.10* 50= $55

On the other hand best case scenario is 100-10= 90%

Best price= 0.9* 50= $45