Laser Technology, Inc. is analyzing a proposed new product. The company expects
ID: 2763576 • Letter: L
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
a.)$1,486,825
b.)$1,536,480
c.)$1,650,000
d.)$1,743,500
e.)$1,767,480
Explanation / Answer
The sales revenue under the worst case scenario can be calculated with the use of following formula
Sales Revenue (Worst Case Scenario) = (Units*(1-4%))*(Selling Price*(1-3%))
Is is so because in case of worst case, sales in units will decline by 4% and selling price will reduce by 3%.
________
Solution:
Using the values provided in the question, we get,
Sales Revenue (Worst Case Scenario) = (2,200*(1-4%))*(750*(1-3%)) = $1,536,480 (which is Option B)
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