Question

The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $160 and $240, with a most likely value of $200 per unit. The product will sell for $300 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely.
Develop a what-if spreadsheet model computing profit for this product in the base case, worst-case, and best-case scenarios.

Best-case profit: $________
Worst-case profit: $_______
Base case profit: $________

Answer 1

Answer:

Best-case profit: $2,500,000

Worst-case profit: -$300,000

Base case profit: $100,000

Explanation:

initial cost $300,000

variable cost between $160 - $240

most likely variable cost $200

sales price per unit $300

expected demand 0 - 20,000 units

most likely expected demand 4,000 units

best case scenario:

20,000 units x $300 = $6,000,000

- variable costs 20,000 x $160 = -$3,200,000

- fixed cost = -$300,000

profit = $2,500,000

base case scenario:

4,000 units x $300 = $1,200,000

- variable costs 4,000 x $200 = -$800,000

- fixed cost = -$300,000

profit = $100,000

worst case scenario:

0 units x $300 = $0

- fixed cost = -$300,000

profit = -$300,000