Automatic Transmissions, Inc., has the following estimates for its new gear asse

Question

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,160 per unit; variable cost = $380 per unit; fixed costs = $4.89 million; quantity = 79,000 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 and worst-case scenario analysis? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars. Round your answers to the nearest whole dollar amount (e.g.,1,234,567).)

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,160 per unit; variable cost = $380 per unit; fixed costs = $4.89 million; quantity = 79,000 units. Suppose the company believes all of its estimates are accurate only to within ± 15 percent.

Explanation / Answer

Scenario Unit Sales Unit Price Unit Variable Cost Fixed Costs Base case 79,000 $ 1,160 $ 380 $ 4,890,000 Best case 79,000 x 1.15 = 90,850 $ 1,160 x 1.15 = 1,334 $ 380 x 0.85 = 323 $ 4,890,000 x 0.85 = 4,156,500 Worst case 79,000 x 0.85 = 67,150 $ 1,160 x 0.85 = 986 $ 380 x 1.15 = $437 $ 4,890,000 x 1.15 = $5,623,500

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