50.1K

Verified Solution

Link Copied!

please help, soon!!

CVP Modeling project 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 any changes to the assumptions will correctly ripple through the entire profitability analysis. If executed properly, the client should be able to use this spreadsheet over and over, using different "what if" assumptions. Business Description After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products: Product 1: "Launch-it"- a tennis ball thrower that will sell for $10. Product 2: "Treat-time"- an automatic treat dispenser that releases a treat when the dog places his paw on the pedal. The treat dispenser will sell for $30. 5 Costs: Jake has hired an employee to work the trade show booths. The work contract is $1,000 per month plus a commission equal to 10% of revenue. Jake will also spend $500 per month on trade-show entry fees. Jake is purchasing the products from a supplier in Mexico. Launch-its cost $1 each; Treat-times cost $7 each. Shipping and handling on the Launch-its will cost $2 each; Shipping and handling on the Treat-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid by Jake, not the customer. 3 3 5 5 7 3 Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June) Jake's financial goal is to earn an operating Income of $8,000 per month. He believes volume may grow at a rate of 5% a month. 1 2 4 Directions You have been hired by Jake to build a CVP model that will help him understand the impact of business conditions on his operating Income. (See "Starting File worksheet.) in your model, all of the original assumptions will be listed one area of the spreadsheet (blue box). All other calculations in the model will reference the assumptions (blue box) such that any assumption changes, the effect will ripple through the entire model. To accomplish this goal, you will use FORMULAS, rather than numbers, in every other cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box FIRST TASK: Rename your worksheet: LastnameFirstnameCVP FORMATTING conventions to use throughout prolesti - Round all UNITS to the nearest whole unit. Use the decrease decimals" button on your tool bar rather than the Rounding function, Show al MONETARY amounts as dollars and cents. Round to the nearest cent. (Sko). Use the "decrease decimals" button rather than the rounding function - Show all percentages as X, not as decimals, not - Right justity all cells (numbers should be to the right side of the cell, not in the middle or left) 1) Complete the assumptions (blue box) based on the data about lake's business. Identity and list all variable costs separately and all fixed costs separately before finding the total for each type of cost. 2) Complete the Product Analysis (yellow boxes assuming Sale ONLY seis either Product #1 (Launch-ta] OR Product #2 (Treat-times), Check figures: L/E Product 11 = 250 units, B/E Product 12= 12 units 3) Complete the pro forma CM Income Statement for the month of June (green box). HINT: On product line income statements such as this, the fixed costs are only listed in the total column. Make sure you also show the totals for all other line items. Finally, calculate the overall WACMX (Weighted Average Contribution Margin - This is the CMR for the company as a whole) for the company Check figure: Operating income - $900 WACMX 48% 4 Calculate the weighted average contribution margin (WACM) per unt (in orange bou). Check figure: WACM/unit - $8.00 5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gray box). THEN calculate the number of EACH type of product needed to breakeven. Finally, calculate the sales revenue associated with this volume for EACH product, and then the sales revenue to breakeven in total Check figures: B/E Product 1 - 125; B/E Product x2=63 6) Use the WACM/unit to calculate the total number of units needed to achieve Jake's target profit (TOTAL column in the second gray box). THEN, calculate the number of EACH type of product needed to achieve the target profit. Finally, calculate sales revenue associated with this volume for EACH product, and then the sales revenue in total Check figures: B/E Product 81 792: B/E Product 2.295 7) Calculate the MOS using lune sales as the expected sales purple boa Calculate the MOS in terms of sales revenue and as a percentage. Also calculate the current operating leverage factor this is the DOL) tround to the nearest 2 decimal places) and use it to determine the expected percentage change in operating Income stemming from the expected change in sales volume Check figures: MOSS-38%; Operating leverage factore 267 8) Change name of worksheet to "Original Assumptions 9) Make sure you have cleaned up your worksheet using the formatting conventions listed above (use underlining and double underlining where appropriate). 10) Go to the "Advising client worksheet and follow the directions found there D E ASSUMPTONS Prod Salarice per unit Variable competit Products UNOM CMN Bremboit Ants Jake Pet Supplies ProForma Contribution Margin income Statement For the month endingu 10 Product Product Tot Total artister unit Tarpt volume nunti has never Molyvolume Treat time WACMN Prod Spriceperunt Veecom per Pro Tree CM Calcution of Wal berunit Products Per Tot CMN Bresleven point th in sale Total variablecer More Target profitne WART co Brod Multiproduct resepi in its were Totem Matters Total 1 15 50 Mwana Sales perior 30 1 10 61 Technini Once you have built the model, use it to answer Jake's questions about his business. Treat each situation as a separate scenario. All comparisons should be made to the original assumptions. 1. Save a copy of your original model to a new spreadsheet called "supplier cost increase!". Say the supplier is expected to increase the cost of the products by 20%. What is the new operating income? What is the new WACM%? What is the new MOS%? Briefly explain your findings to the client. Ope WA MO Ope 2. Save another copy of your original model to a new spreadsheet called "new sales mix". Say the monthly sales volume is now expected to be 175 "Treat-times" and 125 "Launch-its" (same total units, but a different sales mix). What is the new operating income? What is the new WACM/unit? Given this sales mix, how many units (in total) will Jake need to sell to earn his target profit? Briefly explain your findings to the client. WA Uni 3 5 5 7 Ope 3 3. Save a third copy of your original model to a new spreadsheet called "alternative contract". Say Jake's employee wanted to negotiate a different work contract: $1,500 per month plus 5% of revenue. Given his original sales volume and mix, how would this contract have changed Jake's operating income? What is the new operating leverage factor? What is the new expected percentage change in operating income if volume increases as expected in the future? Briefly explain your findings to the client. Ope 1 Exp" PY Trename EXCEL HINT: To copy a cell from a different worksheet, put a in the cell where you want the number to go, and then go back to the original worksheet, put your cursor on the cell, and then pressenter NEW ORIGINAL Change Operating Income Brief explanation: WACM percentage MOSX Operating income Brief explanation: WACM/unit Units to earn target profit Operating income Brief explanation: Operating leverage factor Expected change in op ine

Answer & Explanation Solved by verified expert

See Answer