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 = $1,080 per unit; variable cost = $300 per unit; fixed costs = $4.81 million; quantity = 71,000 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? (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 = $1,080 per unit; variable cost = $300 per unit; fixed costs = $4.81 million; quantity = 71,000 units. Suppose the company believes all of its estimates are accurate only to within ± 16 percent.

Explanation / Answer

In the best case scenario, unit sales and selling price would increase, and costs would decrease

In the worst case scenario, unit sales and selling price would decrease, and costs would increase.

Scenario Unit Sales Unit Price Unit Variable Cost Fixed Costs Base case 71,000 $ 1,080 $ 300 $ 4,810,000 Best case 82,360 $ 1,252.80 $ 252 $ 4,040,400 Worst case 59,640 $ 907.20 $ 348 $ 5,579,600

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