Question
With the successful St. Louis expansion behind them, Dunder Mifflin is now interested in opening a regional sales office in Kansas City. Michael Scott has
With the successful St. Louis expansion behind them, Dunder Mifflin is now interested in opening a regional sales office in Kansas City.
Michael Scott has estimated the following information for this proposed 4-year project: initial fixed asset investment = $464; straight-line depreciation to zero over the 4-year life; zero salvage value; price = $35, variable costs = $22; fixed costs = $196,899; quantity sold = 94,534 units; tax rate = 22 percent.
What is the dollar sensitivity of OCF to changes in quantity sold? That is, how much does OCF change (in dollar terms) for a one-unit increase in quantity sold? Enter the dollar amount to two decimal places (ex. -$5,000.45 as -5000.45 or +$3,450.70 as 3450.70).
Hint: To avoid rounding error problems, consider the impact of a change of 1,000 units upon the per unit change in OCF. Compare your result to a one-unit increase in quantity sold.
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