Question

Sloan Transmissions, Inc., has the following estimates for its new gear assembly project: price = $3,100 per unit; variable costs = $620 per unit; fixed costs = $4.4 million; quantity = 92,000 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

Answer 1

Base Case:

Units Sales = 92,000
Unit Price = $3,100
Unit Variable Cost = $620
Fixed Costs = $4,400,000

Best Case:

Units Sales = 92,000 * 1.15 = 105,800
Unit Price = $3,100 * 1.15 = $3,565
Unit Variable Cost = $620 * 0.85 = $527
Fixed Costs = $4,400,000 * 0.85 = $3,740,000

Worst Case:

Units Sales = 92,000 * 0.85 = 78,200
Unit Price = $3,100 * 0.85 = $2,635
Unit Variable Cost = $620 * 1.15 = $713
Fixed Costs = $4,400,000 * 1.15 = $5,060,000