Calculating the best-case scenario values for each variable

 

Calculating the best-case scenario values for each variable

Stinnett Transmissions, Incorporated is planning a new gear assembly project and has provided estimates for various variables. These estimates include the price per unit, variable costs per unit, fixed costs, and the quantity of units. The company believes that all of these estimates are accurate within a range of ±15 percent. In order to perform a best-case and worst-case scenario analysis, we need to determine the values for these variables under these scenarios.

To determine the best-case scenario, we need to consider the variables in a way that maximizes the profit for the company. This means using the highest possible values for the price per unit and quantity, and the lowest possible values for variable costs and fixed costs.

Let’s calculate the best-case scenario values for each variable:

Price per unit = $2,500 * (1 + 15%) = $2,875
Variable costs per unit = $500 * (1 – 15%) = $425
Fixed costs = $0.1 million * (1 – 15%) = $0.085 million = $85,000
Quantity = 80,000 * (1 + 15%) = 92,000 units

Therefore, under the best-case scenario, Stinnett Transmissions should use the following values:

Price per unit: $2,875
Variable costs per unit: $425
Fixed costs: $85,000
Quantity: 92,000 units

Now let’s calculate the worst-case scenario values for each variable:

Price per unit = $2,500 * (1 – 15%) = $2,125
Variable costs per unit = $500 * (1 + 15%) = $575
Fixed costs = $0.1 million * (1 + 15%) = $0.115 million = $115,000
Quantity = 80,000 * (1 – 15%) = 68,000 units

Therefore, under the worst-case scenario, Stinnett Transmissions should use the following values:

Price per unit: $2,125
Variable costs per unit: $575
Fixed costs: $115,000
Quantity: 68,000 units

By analyzing both the best-case and worst-case scenarios, Stinnett Transmissions can gain a better understanding of the potential outcomes for their new gear assembly project. This information can help them make informed decisions and plan accordingly to ensure the success of their project.