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.

Required:

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).)

Scenario

Unit Sales

Unit Price

Unit Variable Cost

Fixed Costs

  Base case

81,000   

$

1,180   

$

400     

$

4,910,000   

  Best case

93960   

1368.8   

  Worst case

68040   

991.2   

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

Scenario Unit Sales Unit Price Unit Variable Cost Fixed costs   Base case 81,000    1,180    400      4,910,000      Best case 93960    1368.8    336 4124400   Worst case 68040    991.2    464 5695600 Base cae Best case Worst case Units 81000 93960 68040 Sales 95580000 128612448 67441248 Less: Variable cost 32400000 31570560 31570560 Contribution   Margin 63180000 97041888 35870688 Less: Fixed costs 4910000 4124400 5695600 Net income 58270000 92917488 30175088

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