CMA Study Group

  • 1.  Expected Sales Revenue

    Posted 06-28-2021 02:10 PM
    My answer is :
    Sales (Sheets) Probability Weighted Sales Price Probability Weighted Price
    1,235,305 50% 617,652.50 $15.00 80% $12.00
    1,054,255 50% 527,127.50 $15.00 20% $2.70
    Expected Value 100% 1,144,780.00 100% $14.70 $16,828,266.00

    Please let me know what I am missing?


    Question:
    Wall, Corp. (Wall) is the leading manufacturer of drywall in the United States. Wall is trying to predict total sales revenue for next year. A new competitor has announced plans to begin selling a new and improved type of drywall starting next year. Wall believes the new product has a 50% chance of lowering sales of 8' by 4' sheets of drywall, their only product, from 1,235,305 sheets to 1,054,255 sheets. If turns out that the new product does reduce Wall's sales volume, there is a 20% chance that Wall will also be forced to reduce its price of $15.00 per sheet to $13.50 per sheet in order to stay competitive at the new sales volume of 1,054,255 sheets.

    Based on these estimates, what is the expected sales revenue for next year?

    Solution:
    The weighted value is calculated as follows:

    Sales (Sheets) Probability Weighted Sales Price Probability Weighted Price Weighted Value
    1,235,305 50% 617,652.50 $15.00 100% $15.00 $9,264,787.50
    1,054,255 50% 527,127.50 $15.00 80% $12.00 $6,325,530.00
    527,127.50 $13.50 20% $2.70 $1,423,244.25
    Expected Value 100% $17,013,561.75
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    Tejas Doke
    Accountant
    Dombivli MH
    India
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