Formulate a spreadsheet model that will give the profit

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Reference no: EM1386473

The Special Products Company (SPC) produces expensive and unusual gifts to be sold in stores that cater to affluent customers who already have everything. The latest new-product proposal to management from the company%u2019s Research Department is a limited edition leather wallet. Management needs to decide whether to introduce this new product and, if so, how many of these wallets to produce. Before making this decision, a sales forecast will be obtained to estimate how many wallets can be sold. Management wishes to make the decision that will maximize the company%u2019s profit. If the company goes ahead with this product, a fixed cost of $45,000 would be incurred for setting up the production facilities to produce this product. (Note that this cost would not be incurred if management decided not to introduce the product since the setup then would not be done.) In addition to this fixed cost, there is a production cost that varies with the number of wallets produced. (The cost for each additional uni tproduced, $450, is referred to as the marginal cost.) Each wallet sold would generate a revenue of $700 for the company.)

Formulate a spreadsheet model that will give the profit in part b for any of the two numbers. Use the Excel goal seek command to calculate the break-even point found in part a. How many wallets should SPC make when s = 80 and s = 300? What are the corresponding profits?

Reference no: EM1386473

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