Sloan Transmissions, Inc., has the following estimates for its new gear assembly

Question

Sloan Transmissions, Inc., has the following estimates for its new gear assembly project: price = $2,500 per unit; variable costs = $500 per unit; fixed costs = $5.1 million; quantity = 80,000 units. Suppose the company believes all of its estimates are accurate only to within ±15 percent. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario?

Scenario Units Sales Unit Price Unit
Variable cost Fixed Costs   Base     $     $      $      Best                   Worst                

Explanation / Answer

Scenario Unit Sales Unit price variable cost Fixed Cost Base 80000 2500 500 5.1million Best (80000*.15)+80000 = 92000 (2500*.15)+2500 = 2875 500-(500*15%) = 425 5,100,000-(5,100,000*15%) = 4335000 Worst 80000-12000 = 68000 2500-375 = 2125 500+75 = 575 5100000+765000 = 5865000

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