hamza739
Mar 4, 2016, 05:33 PM
Glenn has always been interested in operating his own part time business but has always postponed this as
He is quite averse to taking big risks. However he has seen an opportunity in the Widget market where a
Small niche exists that is not satisfied. He is very confident that he can satisfy this unmet demand by
Manufacturing and selling a Mini Widget ( the MW) using proven technologies and that he can market these
Easily through the business of a good friend who will stock them at his chain of retail shops.
The MW can be made using low cost unskilled labour and easily available materials, using ether the Deluxe
Widget Machine ( Machine A) or a more Basic Widget Machine (Machine B). Glenn is extremely confident
That he can make and sell 10,000 units in his first year. At the 10,000 unit level, if he uses Machine A he
Believes that after fixed costs of $30,000 he can generate operating income of $30,000 whereas if he uses
Machine B his E.B.I.T would be $24,000 after fixed costs of $24,000.
He has asked his friend Charles P Adams (CPA for short) to advise him as to which machine would be most
Suitable. Glenn is certain that after year 1, demand will fall for years 2 to 10 but in no case be less than 4,000
Units and in no case be above 8,000 units. It is equally likely that in any given year the demand will 4,000 or
8,000.
He is quite averse to taking big risks. However he has seen an opportunity in the Widget market where a
Small niche exists that is not satisfied. He is very confident that he can satisfy this unmet demand by
Manufacturing and selling a Mini Widget ( the MW) using proven technologies and that he can market these
Easily through the business of a good friend who will stock them at his chain of retail shops.
The MW can be made using low cost unskilled labour and easily available materials, using ether the Deluxe
Widget Machine ( Machine A) or a more Basic Widget Machine (Machine B). Glenn is extremely confident
That he can make and sell 10,000 units in his first year. At the 10,000 unit level, if he uses Machine A he
Believes that after fixed costs of $30,000 he can generate operating income of $30,000 whereas if he uses
Machine B his E.B.I.T would be $24,000 after fixed costs of $24,000.
He has asked his friend Charles P Adams (CPA for short) to advise him as to which machine would be most
Suitable. Glenn is certain that after year 1, demand will fall for years 2 to 10 but in no case be less than 4,000
Units and in no case be above 8,000 units. It is equally likely that in any given year the demand will 4,000 or
8,000.