Question

You now own a manufacturing firm and your firm makes 6 products. Each product has the following cost components: Material, Labor, and Marketing. In addition, there is a fixed cost for the firm.

Cost of item in production units

Production units	BA	AB	XC	RC	WA	RT
Material Units	2	2	1	1	3	1
Labor units	1	1	1	2	2	1
Marketing	1	1	1	2	2	1
Production units cost per unit
Material	$7	5	4	5	6	6
Labor	$5	$4	$5	$6	$5	$5
Marketing	$3	$2	$2	$2	$4	$2
Retail Price	40	35	25	28	58	31
Quantity	500	750	650	900	250	600

Fixed cost:            $12,000

Use scenario manager to conduct the following stress tests by determining the effect of the following scenarios upon net profit:

#1

Increase retail price, material cost, marketing and labor cost by 12%.

#2

Increase retail price by 5%, increase labor cost by 7%, increase marketing cost by 5% and hold material cost static.

#3

Decrease retail price by 5%, increase labor cost by 5%, decrease marketing cost by 5% and increase material cost by 5%, increase fixed cost by $1,000

Answer 1

Let us consider the As Is Scenario,

Product	BA	AB	XC	RC	WA	RT
Quantity	500	750	650	900	250	600
Retail Price	40	35	25	28	58	31
Variable cost	22	16	11	21	36	13
Profit per Unit	18	19	14	7	22	18
Total Profit	9000	14250	9100	6300	5500	10800
Total Profit for the firm	54950
Fixed Cost for the firm	12000
Net profit for the firm	42950

In Scenario 1,

Product	BA	AB	XC	RC	WA	RT
Quantity	500	750	650	900	250	600
Retail Price	44.8	39.2	28	31.36	64.96	34.72
Variable cost	24.64	17.92	12.32	23.52	40.32	14.56
Profit per Unit	20.16	21.28	15.68	7.84	24.64	20.16
Total Profit	10080	15960	10192	7056	6160	12096
Total Profit for the firm	61544
Fixed Cost for the firm	12000
Net profit for the firm	49544

Here, Net profit increased by 15.35%

In Scenario 2,

Product	BA	AB	XC	RC	WA	RT
Quantity	500	750	650	900	250	600
Retail Price	42	36.75	26.25	29.4	60.9	32.55
Variable cost	22.5	16.38	11.45	22.04	37.1	13.45
Profit per Unit	19.5	20.37	14.8	7.36	23.8	19.1
Total Profit	9750	15277.5	9620	6624	5950	11460
Total Profit for the firm	58681.5
Fixed Cost for the firm	12000
Net profit for the firm	46681.5

Here, Net profit increased by 8.68%

In Scenario 3,

Product	BA	AB	XC	RC	WA	RT
Quantity	500	750	650	900	250	600
Retail Price	38	33.25	23.75	26.6	55.1	29.45
Variable cost	22.8	16.6	11.35	21.65	37	13.45
Profit per Unit	15.2	16.65	12.4	4.95	18.1	16
Total Profit	7600	12487.5	8060	4455	4525	9600
Total Profit for the firm	46727.5
Fixed Cost for the firm	13000
Net profit for the firm	33727.5

Here, Net profit decreased by 21.47%