New Town Instruments is analyzing a proposed project. The company expects to sell 1,500 units, ±3 percent. The expected variable cost per unit is $210 and the expected fixed costs are $428,000. Cost estimates are considered accurate within a ±2 percent range. The depreciation expense is $64,000. The sales price is estimated at $647 per unit, ±2 percent. What is the sales revenue under the worst-case scenario?

Question

Dalia Daugherty

Business

30 April, 17:03

New Town Instruments is analyzing a proposed project. The company expects to sell 1,500 units, ±3 percent. The expected variable cost per unit is $210 and the expected fixed costs are $428,000. Cost estimates are considered accurate within a ±2 percent range. The depreciation expense is $64,000. The sales price is estimated at $647 per unit, ±2 percent. What is the sales revenue under the worst-case scenario?

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Answers (1)

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Yasmine Montoya · Answer 1

Worst case sales revenue is $ 922,557.30

Explanation:

The sales revenue under the worst case is the one that price that considers the lowest possible volume of units as well as the lowest sales price per unit.

Lowest volume possible = (1-3%) * 1500

= (1-0.03) * 1500

=0.97*1500

=1455

Lowest possible price = (1-2%) * $647

= (1-0.02) * $647

=0.98*$647

=$634.06

worst-case revenue=1455*$634.06

=$ 922,557.30

Sales revenue under the case scenario is $922,557.30 as shown in the computation above.