Podcessories manufactures 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 (consisting 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 be very profitable. Unfortunately, the company is being forced to decide about renewing the leases required to continue this item before knowing if it will receive the large order from the discount retailer. The variable cost per unit for this item is $6. The regular selling price of the item is $12 per unit. However, the company has offered the discount retailer a price of $10.50 per unit due to the size of its potential order. Podcessories 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.

a. Create a spreadsheet model for this problem.

b. How much money might the company lose next year (worst case) if it continues this line?

c. How much money might the company make next year (best case) if it continues this line?

d. If the company loses money, on average how much could it expect to lose? (Use the filter option under the forecast window’s preferences command.)

e. If the company makes money, on average how much could it expect to make? (Use the filter option under the forecast window’s preferences command.)

f. What other actions might you suggest this company take to improve its chance of making a decision with a good outcome?