Question

PortaCom manufactures notebook computers and related equipment. PortaCom's product design group developed a prototype for a new high-quality portable printer. The new printer features an innovative design and has the potential to capture a significant share of the portable printer market. Preliminary marketing and financial analyses provided the following selling price, first-year administrative cost, and first-year advertising cost:

Selling price	=	$245 per unit
Administrative cost	=	$350,000
Advertising cost	=	$550,000

In the simulation model for the PortaCom problem, the preceding values are constants and are referred to as parameters of the model.

1. An engineer on the product development team believes that first-year sales for the new printer will be 18,000 units. Using estimates of $44 per unit for the direct labor cost and $93 per unit for the parts cost, what is the first-year profit using the engineer's sales estimate?
   
   $   
   
2. The financial analyst on the product development team is more conservative, indicating that parts cost may well be $101 per unit. In addition, the analyst suggests that a sales volume of 9,500 units is more realistic. Using the most likely value of $44 per unit for the direct labor cost, what is the first-year profit using the financial analyst's estimates?
   
   $   

Answer 1

a) Estimates in first year	($)
Selling Price per unit	245
Direct labor cost	-44
Parts cost	-93
Contribution margin per unit	108
Number of unit sold	18,000
Total Sales	1,944,000
Admin cost	-350,000
Advertising cost	-550,000
Profit	1,044,000
b) Estimates in first year	($)
Selling Price per unit	245
Direct labor cost per unit	-44
Parts cost per unit	-101
Contribution margin per unit	100
Number of unit sold	9,500
Total Sales	950,000
Admin cost	-350,000
Advertising cost	-550,000
Profit	50,000

Excel formula:

a) Estimates in first year	($)
Selling Price per unit	245
Direct labor cost	-44
Parts cost	-93
Contribution margin per unit	=SUM(B18:B20)
Number of unit sold	18000
Total Sales	=B21*B22
Admin cost	-350000
Advertising cost	-550000
Profit	=B23+B24+B25
b) Estimates in first year	($)
Selling Price per unit	245
Direct labor cost per unit	-44
Parts cost per unit	-101
Contribution margin per unit	=SUM(B30:B32)
Number of unit sold	9500
Total Sales	=B33*B34
Admin cost	-350000
Advertising cost	-550000
Profit	=B35+B36+B37