Question

The Sedgwick Company estimates sales of a new product at 5,000 units and $3.00 per unit. Management feels the sales quantity is accurate within a 10 percent plus-or-minus range while the sales price is accurate within a 5 percent plus-or-minus range. What dollar amount should the company use for total sales in their worst-case scenario analysis of this product?A) $12,150B) $12,825C) $13,500D) $14,250E) $15,000

Answer 1

Answer:

B) $12,825

Explanation:

In order to calculate the worst case scenario of sales first we need to calculate the worst case for sales of units.

The Company estimates that 5,000 units will be sold with a 10 percent plus-or-minus range. So, let calculate the worst case for the sale of units, in this case being 90% of the 5,000 unit estimate. Calculate 90% of 5,000, and this gives us 4,500 units as the worst case scenario.

To calculate the the worst case scenario for price, lets use the $3.00 per unit estimated by the Company, and apply the same concept, however, taking into account that sales price has a 5 percent plus-or minus range. So we caclulate %95 of $3.00, and this gives us $2.85 as our worst case scenario for price.

Now, we take our worst case scenario for amount of units and price:

4,500 units x $2.85 = $12,825

$12,825 is the total dollar amount for the worst case scenario of this product.