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10.4 Worst Case / Best Case

If you wish, you can enter sales forecasts and production schedules that develop worst case / best case scenarios. Here is an example:

You generate a pessimistic forecast of 1,200,000 for your Traditional product, which predicts in the worst case monthly sales of 100,000 units. As a matter of policy, your management team might decide that manufacturing an additional three months’ worth of inventory, or 300,000 units, is an acceptable risk when compared to the potential reward of making extra sales.

In the Marketing spreadsheet, enter the worst case forecast of 1,200 in the Your Sales Forecast cell. In the Production spreadsheet, enter the best case of 1,500 in the Production Schedule cell (if inventory remains from the previous year, be sure to subtract that from the 1,500). At the end of the year, in the worst case you will have sold 1,200,000 units and have 300,000 units in inventory. In the best case you will have sold 1,500,000 units and have zero inventory.

The spread between the positions will show up as inventory on your proforma balance sheet. Your proforma income statement will also reflect the worst case for sales. In the Finance area, if the December 31 Cash Position is negative, adjust current debt, long term debt and stock issue entries until the December 31 Cash Position becomes positive. This will help ensure against an emergency loan.

To see your best case, return to the Marketing spreadsheet and enter 1,500 in the Your Sales Forecast cell then review the December 31 Cash Position. The actual results should lie somewhere between the worst and best cases.

Log into the Capstone Web Application and select Marketing under the Decisions menu. There are two forecasts per product. The Benchmark Prediction assumes your competition has mediocre products and therefore is not reliable. The Your Sales Forecast column allows you to enter forecasts of your own.

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