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 = $1,120 per unit; variable cost = $340 per unit; fixed costs = $4.85 million; quantity = 75,000 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 = $1,120 per unit; variable cost = $340 per unit; fixed costs = $4.85 million; quantity = 75,000 units. Suppose the company believes all of its estimates are accurate only to within ± 15 percent.

Explanation / Answer

Answer

Working

Best Case

Unit sales = 75000*(1+15%) =86250

Unit Price = 1120*(1+15%) = 1288

Unit Variable Cost = 340*(1-15%) = 289

Fixed Cost = 4850000*(1-15%) = 4122500

Worst Case

Unit sales = 75000*(1-15%) =63750

Unit Price = 1120*(1-15%) = 952

Unit Variable Cost = 340*(1+15%) = 391

Fixed Cost = 4850000*(1+15%) = 5577500

Scenario Unit Sales Unit Price Unit Variable Cost Fixed Costs   Base case 75000 1120 340 4850000   Best case 86250 1288 289 4122500   Worst case 63750 952 391 5577500

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