
21. The best case and worst cases for the variables are:
Base Case Best Case Worst Case
Unit sales (new) 51,000 56,100 45,900
Price (new) $750 $825 $675
VC (new) $330 $297 $363
Fixed costs $8,100,000 $7,290,000 $8,910,000
Sales lost (expensive) 11,000 9,900 12,100
Sales gained (cheap) 9,500 10,450 8,550
Best-case
We will calculate the sales and variable costs first. Since we will lose sales of the expensive clubs and
gain sales of the cheap clubs, these must be accounted for as erosion. The total sales for the new project
will be:
Sales
New clubs $750 56,100 = $46,282,500
Exp. clubs $1,200 (–9,900) = – 11,880,000
Cheap clubs $420 10,450 = 4,389,000
$38,791,500
For the variable costs, we must include the units gained or lost from the existing clubs. Note that the
variable costs of the expensive clubs are an inflow. If we are not producing the sets anymore, we will
save these variable costs, which is an inflow. So:
Var. costs
New clubs –$297 56,100 = –$16,661,700
Exp. clubs –$650 (–9,900) = 6,435,000
Cheap clubs –$190 10,450 = – 1,985,500
–$12,212,200