Question

Sloan Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,200 per unit; variable costs = $240 per unit; fixed costs = $2.6 million; quantity = 70,000 units. Suppose the company believes all of its estimates are accurate only to within ±10 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. The previous answers are wrong.please show me all work

Answer 1

Best - Case Scenario

In case of Best case scenario, everything will be in our favour, i.e., selling price and quantity sold will be higher by 10% whereas the costs would be lower by 10% -

Selling price = $1200 + 10% = $1320 per unit

Variable Costs = $240 - 10% = $216 per unit

Fixed Costs = $2,600,000 - 10% = $2,340,000

Quantity = 70,000 + 10% = 77,000 units

Worst Case

In case of worst case, it will be the opposite, i.e., every estimate is against us. The selling price and quantity sold will be lower by 10% and costs will be higher by 10% -

Selling price = $1200 - 10% = $1080 per unit

Variable Costs = $240 + 10% = $264 per unit

Fixed Costs = $2,600,000 + 10% = $2,860,000

Quantity = 70,000 - 10% = 63,000 units