Project: CVP Modeling and Analysis
The purpose of this project is to give you experience creating a multiproduct profitability analysis that can be used to determine the effects of changing business conditions on the client’s financial position.
Your goal will be to use Excel in such a way that changes to the assumptions will correctly ripple through the entire profitability analysis.
The Stackpole Company retails two products, a standard and deluxe version of a luggage carrier.
The standard carrier sells for $28, has variable costs of $18, and direct fixed costs of $1,000,000. The deluxe model sells for $50, has variable costs of $30, and direct fixed costs of $1,000,000. The company has common fixed costs of $250,000. The anticipated sales mix for the company is 3:1 or 75/25.
You have been hired to build a CVP model to help the company understand the impact of business conditions on operating income
Your model should include breakeven in units with a pro forma income statement, units sales for a target income of $250,000 with a pro forma income statement, an income statement reflecting actual current sales, margin of safety in dollars and %, and degree of operating leverage.
Your model should have the capability of computing B/E, target income, MOS, DOL, and predicting change in income based on a change in sales. Create a dashboard to show the these variables.
Once you have built the model, use the model to determine changes to the dashboard variables. In a report to me, your CEO, show the original variables, the changed variables and explain why the change occurred.
- Sales mix changes to 25/75
- Common fixed costs increase by $100,000
- Reduce VC of the standard carrier to $10 per unit
How to Design a Spreadsheet Model:
- Determine the objective
- Determine what information is needed
- Make sure you know how to solve the problem
- Use Excel to model the objective, compute the solution, and display the results
- Test your spreadsheet to ensure it meets the objective (use the chapter example)
Layout of the Spreadsheet:
- Top-down; left-right
- One workbook, if possible
- Separate input and report areas
- All changes should occur in the input area – not in the body of the spreadsheet where you compute the solution
- All cells in the body of the spreadsheet should contain a reference, formula, or function
- Display – layout in a manner that is easy to follow; format cells to clearly identify the contents as numbers, dollars and cents, etc….; include labels, headings, etc…
- Include user instructions
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