Question

Whitewater Transmissions, Inc., has the following estimates for its new gear assembly project: price = $2,020 per unit; variable costs = $800 per unit; fixed costs = $5.7 million; quantity = 111,000 units. Suppose the company believes all of its estimates are accurate only to within ±15%. 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? (Enter the answers in dollars, not millions of dollars, i.e. 1,234,567. Omit $ sign in your response.)

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

Answer 1

Under best case scenario, all variables are assumed to be most favorable

Under worst case scenario, all variable are assumed to be most unfavorable

	Best Case	Base	Worst Case
Price per Unit	2,323(2,020*1.15)	2,020	1717(2,020*0.85)
Variable cost per Unit	680(800*0.85)	800	920(800*1.15)
Fixed costs	4,845,000(5,700,000*0.85)	5,700,000	6,555,000(5,700,000*1.15)
Quantity	127,650(111,000*1.15)	111,000	94,350(111,000*0.85)

It should be noted that in the best-case, sales and price increase, while costs decrease. In the worst-case, sales and price decrease, and costs increase.