Question

2. Using the information in Case 7-64, construct a spreadsheet that answers the questions at the end of the case. 7-64 Special Order Decision Using Excel. The following monthly financial data are for Eco Friendly, Inc., a maker of electric lawn mowers. Eco Friendly makes and sells 5,000 mowers each month. Per Unit $200 Sales revenue Variable costs Contribution margin Fixed costs Profit Total Monthly Data at 5,000 Mowers $1,000,000 750,000 $ 250,000 160,000 $ 90,000 $ 50 Eco Friendly received an offer from a one-time customer to purchase 1,000 mowers this coming month for $180 per unit. Eco Friendly can only produce up to 5,000 units a month, so the special order would reduce regular customer sales. Variable costs per unit will remain at $150. This special order will have no effect on fixed costs. Required: Prepare an Excel spreadsheet, similar to the one shown in the Computer Application box, to determine whether Eco Friendly would be better off rejecting the special order (Alternative 1) or accepting the special order (Alternative 2). Make a recommendation as to which alternative should be accepted and explain the reasoning for your recommendation.

Answer 1

B C D F TH 1 2 m + Alternative 1: Normal Sales- Rejecting Special Order 5000 Units Per Unit Total Sales Revenue $ 200.00 $ 10,00,000.00 Variable Costs $ 150.00 $ 7,50,000.00 Contribution Margin $ 50.00 $ 2,50,000.00 Fixed Costs $ 1,60,000.00 Profit $ 90,000.00 Alternative 2: Accepting Special order Normal- 4000 units Per Unit Total Sales Revenue $ 200.00 $ 8,00,000.00 Variable Costs $ 150.00 $ 6,00,000.00 Contribution Margin $ 50.00 $ 2,00,000.00 Fixed Costs Profit Special- 1000 units Per Unit Total $ 180.00 $1,80,000.00 $ 150.00 $1,50,000.00 $ 30.00 $ 30,000.00 Grand Total $ 9,80,000.00 $ 7,50,000.00 $ 2,30,000.00 $ 1,60,000.00 $ 70,000.00 o . 12 Recommendation: Eco friendly would be better off rejecting the order since, it reduces total profit by $20,000 ($90,000-$70,000)

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