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 $35,000. The variable cost for the product is expected to be between $22 and $32 with a most likely value of $30 per unit. The product will sell for $60 per unit. Demand for the product is expected to range from 400 to 1800 units, with 1500 units the most likely demand.

Develop the profit model for this product. Enter your answer in the form of an expression. (Example: (c+10)?x+800)

Profit =_________  

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)

Explanation / Answer

Q1) Profit model of the product = Revenue - Cost

Profit = 60*x-c*x-35000 = x*(60-c)-35000

where x = Number of units ranging from 400 to 1800;

c = Variable cost per unit ranging from 22 $ to 32 $

Q2) Base case => Variable cost c = 30 $/unit; Demand for the product x = 1500 units

Profit = 1500*(60-30)-35000 = 10000 $

Worst case => Variable cost = 32 $/unit; Demand for the product x = 400 units

Profit = 400*(60-32)-35000 = -23800 $

Best case => Variable cost = 22 $/unit; Demand for the product x = 1800 units

Profit = 1800*(60-22)-35000 = 33400 $

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