Question

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 $32,000. The variable cost for the product is expected to be between $19 and $28 with a most likely value of $26 per unit. The product will sell for $45 per unit. Demand for the product is expected to range from 300 to 1800 units, with 900 units the most likely demand.

	Let	c =	variable cost per unit
		x =	demand

1. Develop the profit model for this product. Enter your answer in the form of an expression. (Example: (c+10)⋅x+800)
   
   Profit =  
   
2. 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 =	$

Answer 1

a) for normal case scenario, the equation will be

16 + 10 for variable cost

and 100 + 800 for the number of units sold.

16+10 * 100+800

= 17100

b) Find below all the three cases:

Base Case
No of units sold	900
Selling price of each unit	45
minus - Variable Cost per unit	-26
Total profit per unit	19
Total profit	17100	19*900

In the best case scenario the company will expect to sell more no of units with less variable cost.

Best Case
No of units sold	1800
Selling price of each unit	45
minus - Variable Cost per unit	-19
Total profit per unit	26
Total profit	46800	26*1800

In the worst case scenario, company will expect to sell less number of units with high variable cost.

Worst Case
No of units sold	300
Selling price of each unit	45
minus - Variable Cost per unit	-28
Total profit per unit	17
Total profit	5100	17*300

	Profits
Base case	17100
Best case	46800
Worst case	5100