Problem 12-02 (Algorithmic) The management of Madeira Manufacturing Company is c

Question

Problem 12-02 (Algorithmic) The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of the product is $27,000. The variable cost for the product is expected to be between $22 and $36 with a most likely value of $24 per unit. The product will sell for $60 per unit. Demand for the product is expected to range from 400 to 2000 units, with 1400 units the most likely demand. Let c variable cost per unit X demand a. Develop the profit model for this product. Enter your answer in the form of an expression. (Example: (C+10).x+800) Profit b. Provide the base-case, worst-case and best-case analyses. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300) Base case: Profit Worst case: Profit Best case: Profit

Explanation / Answer

a. Profit = 60x - (2700 + cx)

= (60 - c)x - 2700

b. Base case: Profit = (60 - 24) * 1400 - 2700

= $47,700

Worst case: Profit = (60 - 36) * 400 - 2700

= $6,900

Best case: Profit = (60 - 22) * 2000 - 2700

= $73,300

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