Problem 12-02 (Algorithmic) The management of Madeira Manufacturing Company is c
ID: 2736148 • Letter: P
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: ProfitExplanation / Answer
Answer a.
Fixed Cost = $27,000
Variable Cost varies between $22 and $36 with $24 most likely.
Demand varies between 400 and 2,000 with 1,400 most likely.
Selling Price = $60
Let Variable Cost be c and demand be x.
Profit = Selling Price – Cost
Profit = 60*x – 27,000 – c*x
= (60 - c)*x – 27,000
Answer b.
Worst Case :
Variable cost = $22 per units
Fixed Cost = $27,000
Demand = 400
Profit = (66 – 22)*400 – 27,000 = - $9,400
Base Case :
Variable cost = $24 per units
Fixed Cost = $27,000
Demand = 1,400
Profit = (66– 24)*1400 – 27,000 = $31,800
Best Case :
Variable cost = $22 per units
Fixed Cost = $27,000
Demand = 400
Profit = (66 – 36)*2,000 – 27,000 = $33,000