Question

Podcessories manufacturers a several accessories for a popular digital music player. The company is trying to decide whether to discontinue one of the items in this product line. Discontinuing the item would save the company $600,000 in fixed costs (comprised of leases on building and machinery) during the coming year. However, the company is anticipating that it might receive an order for 60,000 units from a large discount retailer that could prove to be very profitable. Unfortunately, the company is being forced to make a decision about renewing the leases required to continue this item before it will know if it will receive the large order from the discount retailer. The variable cost per a unit for this item is $6.00. The regular selling price of the item is $12.00 per unit. However, the company has offered the discount retailer a price of $10.50 per unit due to size of its potential order. Podccessories believes there is a 60% chance it will receive the order from the discount retailer. Additionally, it believes general demand for this product (apart from the discount retailer's order) will vary between 45.,000 to 115,000 units with a most likely outcome of 75,000 units. Build a spreadsheet model which can be used for simulation to forecast the total profit of the company.

Answer 1

ANSWER|-

Podcessories manufacturers a several accessories for a popular digital music player. The company is trying to decide whether to discontinue one of the items in this product line. Discontinuing the item would save the company $600,000 in fixed costs (comprised of leases on building and machinery) during the coming year. However, the company is anticipating that it might receive an order for 60,000 units from a large discount retailer that could prove to be very profitable. Unfortunately, the company is being forced to make a decision about renewing the leases required to continue this item before it will know if it will receive the large order from the discount retailer. The variable cost per a unit for this item is $6.00. The regular selling price of the item is $12.00 per unit. However, the company has offered the discount retailer a price of $10.50 per unit due to size of its potential order. Podccessories believes there is a 60% chance it will receive the order from the discount retailer. Additionally, it believes general demand for this product (apart from the discount retailer's order) will vary between 45.,000 to 115,000 units with a most likely outcome of 75,000 units. Build a spreadsheet model which can be used for simulation to forecast the total profit of the company.