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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.

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 11P: Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting...
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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.
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