Kien Sneakers is interested in investigating the level of contribution to profits and overheads that it can expect from a planned new trainer. It intends to set a sales price of €80 per pair. Fixed costs (marketing and general administration) associated with the new trainers are expected to be €350,000. The firm has estimated following range of cost of sales and distribution costs: Cost of Sales (€ per unit ) Cost of Sales (probability distribution) Distribution Costs (€ per unit ) Distribution Costs (probability distribution) 28 0.5 4 0.25 33 0.3 5 0.25 38 0.2 6 0.5 Required: Set up the profit ‘model’ for the new trainer. Estimate the profit contribution under ‘base’ case, ‘best’ case and ‘worst’ case scenarios. Explain the difference between a ‘scenario’ analysis and a ‘sensitivity’ analysis, with examples.
Kien Sneakers is interested in investigating the level of contribution to profits and overheads that it can expect from a planned new trainer. It intends to set a sales price of €80 per pair. Fixed costs (marketing and general administration) associated with the new trainers are expected to be €350,000. The firm has estimated following range of cost of sales and distribution costs: Cost of Sales (€ per unit ) Cost of Sales (probability distribution) Distribution Costs (€ per unit ) Distribution Costs (probability distribution) 28 0.5 4 0.25 33 0.3 5 0.25 38 0.2 6 0.5 Required: Set up the profit ‘model’ for the new trainer. Estimate the profit contribution under ‘base’ case, ‘best’ case and ‘worst’ case scenarios. Explain the difference between a ‘scenario’ analysis and a ‘sensitivity’ analysis, with examples.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Kien Sneakers is interested in investigating the level of contribution to profits and
|
Cost of Sales (€ per unit ) |
Cost of Sales (probability distribution) |
Distribution Costs (€ per unit ) |
Distribution Costs (probability distribution) |
|
28 |
0.5 |
4 |
0.25 |
|
33 |
0.3 |
5 |
0.25 |
|
38 |
0.2 |
6 |
0.5 |
Required:
- Set up the profit ‘model’ for the new trainer. Estimate the profit contribution under ‘base’ case, ‘best’ case and ‘worst’ case scenarios.
- Explain the difference between a ‘scenario’ analysis and a ‘sensitivity’ analysis, with examples.
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