Question

***** All of the answers are correct. I just want to know How to calculate the ( Sales Volume (units) ) *****

A

Problem 12-4 (book/static) Question Help 0 Manitowoc Crane (B). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 10,000 units per year at the yuan equivalent of $24,000 each. The Chinese yuan (renminbi) has been trading at Yuan 8.20/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan9.20/$, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change; or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price. Additionally, financial management believes that if it maintains the same yuan sales price, volume will increase at 12% per annum through year eight. Dollar costs will not change. At the end of 8 years, Manitowoc's patent expires and it will no longer export to China. After the yuan is devalued to Yuan9.20/$, no further devaluations are expected. If Manitowoc Crane raises the yuan price so as to maintain its dollar price, volume will increase at only 1% per annum through year eight, starting from the lower initial base of 9,000 units. Again, dollar costs will not change, and at the end of eight years Manitowoc Crane will stop exporting to China. Manitowoc's weighted average cost of capital is 10%. Given these considerations, what should be Manitowoc's pricing policy? CASE 1 If Manitowoc Crane maintains the same yuan price and in effect sells for fewer dollars, the annual sales price per unit is equal to ($24,000 x Yuan8.20/$) - Yuan9.20/$ = $21,391.3. The direct cost per unit is 75% of the sales, or $24,000 X 0.75 = $18,000. Calculate the gross profits for years 1 through 4 in the following table: (Round to the nearest dollar.) Case 1 Year 1 Year 2 Year 3 Year 4 Sales volume (units) 10,000 11,200 12,544 14,049 ?? Sales price per unit $ 21,391.3 $ 213,913,000 21,391.3 $ 239,582,560 21,391.3 $ 268,332,467 21,391.3 300,526,374 Total sales revenue Direct cost per unit $ 18,000 $ 180,000,000 $ 33,913,000 $ Total direct costs 18,000 $ 201,600,000 37,982,560 $ 18,000 $ 225,792,000 42,540,467 $ 18,000 252,882,000 Gross profits 47,644,374 Calculate the gross profits for years 5 through 8 in the following table: (Round to the nearest dollar.) Case 1 Year 5 Year 6 Year 7 Year 8 Sales volume (units) 15,735 17,623 19,738 22,107 ?? Sales price per unit $ 21,391.3 $ 336,592,106 21,391.3 $ 376,978,880 21,391.3 422,221,479 21,391.3 472,897,469 Total sales revenue Direct cost per unit 18,000 $ 283,230,000 18,000 $ 317,214,000 59,764,880 $ 18,000 $ 355,284,000 18,000 397,926,000 Total direct costs Gross profits $ 53,362,106 $ 66,937,479 $ 74,971,469

Answer 1

Hint given in Question:-

sales volume year 1 =10000 units

Sales Volume will increase at 12% per annum through year eight

Solution:-

Year	Sales Volume units (calculation)	Sales units
Year 1	10000	10000(given)
Year 2	10000+12%of 10000 10000 + 1200 = 11200	11200
Year 3	11200 + 12% of 11200 11200 + 1344 = 12544	12544
Year 4	12544 + 12% of 12544 12544 + 1505.28 = 14049.28 = 14049	14049
Year 5	14049 + 12% of 14049 14049 + 1685.88 = 15734.88 = 15735	15735
Year 6	15735 + 12% of 15735 15735 + 1888.2 = 17623.2    = 17623	17623
Year 7	17623 + 12% of 17623 17623 + 2114.76 = 19737.76 = 19738	19738
Year 8	19738 + 12% of 19738 19738 + 2368.56 = 22106.56    = 22107	22107