Laser Technology, Inc. is analyzing a proposed new product. The company expects

Question

Laser Technology, Inc. is analyzing a proposed new product. The company expects to sell 2,200 units, give or take 4 percent. The expected variable cost per unit is $290 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 3 percent range. The depreciation expense is $286,000. The sales price is estimated at $750 per unit, plus or minus 3 percent. What is the sales revenue under the worst case scenario? $1,486,825 $1,536,480 $1,650,000 $1,743,500 $1,767,480

Explanation / Answer

Worst case:

Actual sales units = Sales units x (1+ variation)

                                   = 2,200 x (1-0.04)

                                   = 2112 units

Actual price = 750 x (1-0.03)

                        = 727.50

Worst case sales revenue = sales units x price

                                                   = 2112 x 727.50

                                                    = $1,536,480

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