Lucy is concerned that she has risk in the suits per store she has forecast. She wants to understand the impact a 5% reduction to 28.5 suits per month will have on her Year 5 Net Earnings. What is the Net Earnings when the monthly sales is lowered to 28.5 swimsuits?

Question

Lucy is concerned that she has risk in the suits per store she has forecast. She wants to understand the impact a 5% reduction to 28.5 suits per month will have on her Year 5 Net Earnings.  What is the Net Earnings when the monthly sales is lowered to 28.5 swimsuits?

BlackTom AI · Accepted Answer

The task asks for the Net Earnings in Year 5 when monthly sales are lowered to 28.5 swimsuits.

First, outline what data would typically be needed to compute Net Earnings (NE): monthly sales volume, price per unit, variable cost per unit, and any fixed costs that contribute to Year 5 NE. With those, NE for Year 5 would be computed as: NE = (monthly contribution margin) × 12, where monthly contribution margin = (price − variable cost) × monthly sales, minus any fixed costs allocated to Year 5 if not already included in the monthly figure.

Now, assess what lowering monthly sales to 28.5 implies. If the original forecast was 30 swimsuits per month (since 28.5 is 95% of 30), the change is a 5% decrease in monthly volume. The year-over-year impact depends on whether NE scales linearly with volume and whether there are fixed costs that do not change with volume.

Optionally, you can compute the implied unit economics if you know the NE at a baseline volume. For example, if you knew the baseline Year 5 NE at 30 swimsuits/month, you could scale it by the ratio of new to baseline volume (28.5/30 = 0.95). In that case, Year 5 NE_new = Year_5_NE_baseline × 0.95, assuming fixed costs do not change and there are no volume-dependent step costs. However, without the baseline NE or unit economics (price and costs per swimsuit), you cannot independently verify the numeric NE value.

Given the provided answer 213,300, you could back-calculate what baseline assumptions would be consistent with that result. If NE scales linearly with monthly sales and there are no fixed-cost anomalies, then NE at 28.5 per month would be 0.95 of NE at 30 per month. Let NE_30 denote Year 5 NE at 30/month. Then NE_28.5 = 0.95 × NE_30. Setting NE_28.5 = 213,300 implies NE_30 ≈ 213,300 / 0.95 ≈ 224,526.32. This would be the Year 5 NE under the original forecast of 30 swimsuits per month.

In absence of explicit baseline NE or unit economics in the provided data, the direct calculation to 213,300 cannot be verified from first principles here; the result is consistent with a linear scaling assumption from a higher baseline NE. If your course or dataset includes the Year 5 NE at the original forecast (30 per month) or unit price, unit variable cost, and fixed costs, you can plug those in to confirm whether 213,300 at 28.5 per month is correct.

Key takeaway: to validate the 213,300 figure, you need the baseline Year 5 NE at the original forecast of 30 swimsuits per month (or the price and cost structure per swimsuit plus fixed costs). If you only have the 28.5/month figure and no baseline or unit economics, you cannot uniquely determine NE without making assumptions about linearity and fixed costs. The 213,300 value implies a baseline NE of roughly 224,526.32 under a straightforward 95% scaling, but this relies on the assumption that NE scales directly with volume and fixed costs remain constant.

ENTR6218.31616.202530 Financial Modeling Exercise #3 - Lita Swimwear

Lucy is concerned that she has risk in the suits per store she has forecast. She wants to understand the impact a 5% reduction to 28.5 suits per month will have on her Year 5 Net Earnings. What is the Net Earnings when the monthly sales is lowered to 28.5 swimsuits?

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