Question 2

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:

1. Set up the profit model for the new trainer. Estimate the profit contribution under base case, best case and worst case scenarios.

(7 marks)

2. Explain the difference between a scenario analysis and a sensitivity analysis, with examples.

(3 marks)