Automatic Transmissions, Inc., has the following estimates for its new gear asse

Question

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,180 per unit; variable cost = $400 per unit; fixed costs = $4.91 million; quantity = 81,000 units. Suppose the company believes all of its estimates are accurate only to within ± 16 percent.

What values should the company use for the four variables given here when it performs its best-case and worst-case scenario analysis? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars. Round your answers to the nearest whole dollar amount (e.g.,1,234,567).)

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,180 per unit; variable cost = $400 per unit; fixed costs = $4.91 million; quantity = 81,000 units. Suppose the company believes all of its estimates are accurate only to within ± 16 percent.

Explanation / Answer

Base quantity = 81000 units

Best case when the sales increases by 16% = 81000*116% i.e 93960 units

Worst case when the sales decreases by 16% = 81000*84% i.e 68040 units

Scenario Unit sales Sales price per unit Total Sales Variable cost per unit Total variable cost Fixed cost Base case 81000 units 1180 95580000 400 32400000 4910000 Best case 93960 units 1180 110872800 400 37584000 4910000 Worst case 68040 units 1180 80287200 400 27216000 4910000

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