Question

Sales and Cost Forecast

The sales forecast is based on projected levels of demand. All the numbers are expressed in today’s dollars.

Price per bus	$220,000
Units sold per year	12,250
Labor cost per bus	$32,500
Components & Parts	$86,500
Selling General & Administrative	$200,000,000
NOTE: Average warranty cost per year per bus for the first five years is $2,000. The present value of this cost will be used as a cost figure for each bus. Afterwards, the bus operator will become responsible the repairs on the buses.
The buses can be produced for 15 years. Afterwards, the designs become obsolete.

Price per bus $220,000

Units sold per year 12,250

Labor cost per bus $32,500

Components & Parts $86,500

Selling General & Administrative $200,000,000

Sales Forecast for each Bus basis

Selling Price per Bus = $ 220,000

Cost of production

Labor Cost per Bus $ 32500 + Component & parts $ 86500 +

Selling General Admin $16326.53

(Derived from $200,000,000/No. of Unit 12250) + Average warranty cost $ 2000 x 5 Years =$ 10000

Total Cost of Production = $ 1,45,326.50

Total Profit per Bus = $ 74673.47

Total Profit with sale = $ 74673.47 x 12250 = $9,14,750,008

Total Sales = $2,695,000,000

HELP WITH THIS SECTION ---

Engine choices

Engine	Detroit engines	Marcus engines
Price per engine, including installation	$18,500	$17,500
Average annual warranty cost per year for five years. Afterwards, the bus operator will become responsible for the repairs on the buses.*	$1,250	$1,350
The chosen engine will be installed in every bus and will become a cost figure for each bus.

Answer 1

Sol. Here the questions I am assuming ( as it is not mentioned properly) is that which engine to choose which would make it more profitable for the company.Also the discount rates are also not given so I am assuming it to be equivalent to 10 year treasury yield=3.06%

So the present value of the mantenance of the detriot engine for 5 years at $1250/year= 1250/1.0306 +.......+ 1250/1.0306⁵=$5714.8

So total price of detriot engine=$18,500+5714.8=$24,214.84

So the present value of the mantenance of the marcus engine for 5 years at $1350/year= 1350/1.0306 +.......+ 1350/1.0306⁵=$6172

So total price of detriot engine=$17,500+6172=$23,672.02

So marcus engine is a better choice for the company.