Question

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,130 per unit; variable cost = $350 per unit; fixed costs = $4.86 million; quantity = 76,000 units. Suppose the company believes all of its estimates are accurate only to within ±16 percent. What values should the company use for the four variables given here when it performs its best-case and worst-case scenario analysis?

Answer 1

Answer and Explanation:

The computation is shown below:

Situations   Unit sales    Unit price       Unit variable cost      Fixed cost

Base             76,000       $1,130               $350                   $4.86 million

Best              88,160        $1,311               $294                    $4.0824 million

             (76,000 × 1.16)  ($1,130 × 1.16)   ($350 × 0.84)     ($4.86 × 0.84)

Worst           63,840         $949              $406                     $5.6376 million

              (76,000 × 0.84) ($1,130 × 0.84)    ($350 × 1.16)   ($4.86 × 1.16)

Answer 2

The values should the company use for the four variables given here when it performs its best-case and worst-case scenario analysis :

Situations   Unit sales    Unit price       Unit variable cost      Fixed cost

Base             76,000       $1,130               $350                   $4.86 million

Best             88,160        $1,311               $294                    $4.0824 million

            (76,000 × 1.16)  ($1,130 × 1.16)   ($350 × 0.84)     ($4.86 × 0.84)

Worst           63,840         $949              $406                     $5.6376 million

             (76,000 × 0.84) ($1,130 × 0.84)    ($350 × 1.16)   ($4.86 × 1.16)

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