Scribd
Upload
104 views

Problem Set 03 - What If Analysis

This document provides instructions for 6 problems to analyze using spreadsheets. The problems involve analyzing profit under different scenarios by varying factors like price, costs, sales, and capacity. Tools like data tables, scenario manager, and goal seek are to be used to evaluate how profit changes in response to changes in the underlying assumptions.

Uploaded by

asdf
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
104 views

Problem Set 03 - What If Analysis

This document provides instructions for 6 problems to analyze using spreadsheets. The problems involve analyzing profit under different scenarios by varying factors like price, costs, sales, and capacity. Tools like data tables, scenario manager, and goal seek are to be used to evaluate how profit changes in response to changes in the underlying assumptions.

Uploaded by

asdf
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Problem Set 03: Analysis using Spreadsheets

(Data Tables, Scenario Manager and Goal Seek)

1. Advertising Budget Decision


Refer to Problem 07 (Advertising Budget Decision) in Problem Set 02.
a. What happens to profit if unit costs rise to $26 from $25? What is the
percentage change in profit in this case?
b. What happens if we spend an additional $1000 in Q1 for advertisement? What
is the percentage change in profit?
c. What happens to profit in the above two cases if sales is calculated using the
following relationship:
𝑆𝑎𝑙𝑒𝑠 = 3000 + 0.1 × 𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 × 𝑠𝑒𝑎𝑠𝑜𝑛𝑎𝑙 𝑓𝑎𝑐𝑡𝑜𝑟
d. What happens to profit if we double the price, i.e., $80?
e. What happens to the value of profit if we vary the unit cost from $20 to $30 in
steps of $1?
f. How is profit affected by both Q1 and Q2 advertising? Show the results by
varying Q1 and Q2 advertising from $5000 to $15000 in steps of $1000.
g. What happens to profit in the following scenarios:
Scenario Unit Price Unit Cost Overhead
Optimistic $50 $20 12%
Pessimistic $35 $30 18%
Base $40 $25 15%

h. Determine the breakeven unit cost.

2. Hogwarts Express
Refer to Problem 02 (Hogwarts Express) in Problem Set 02.
a. What happens to the profit if the price per ticket varies from 200 to 500
wizard dollars?
b. What happens to the profit if the capacity varies from 200 to 300?
c. What happens to the profit if the overbooking compensation varies from
300 to 400 wizard dollars?

3. SwimSkin Co.’s New Product Launch


Refer to Problem 06 (SwimSkin Co.’s New Product Launch) in Problem Set
02. You have already created the base case model for this problem. Now,
consider the following situations:
a. How can Richard arrive at a precise breakeven value for the number of
units sold?
b. What if the sales group’s estimate of the number of units sold is incorrect?
What if the projected number of swimmers who want to buy SwimEdge is
too optimistic? Richard is interested in what the sales revenue, contribution
margin, and income before taxes will be if the number of units sold varied
from 500 to 5000. Using Excel, help Richard check this. Note that
contribution margin is calculated by subtracting variable expenses from
sales and represents the amount of revenue that contributes to covering the
fixed expenses of a company.
c. Richard is also worried about how the profitability estimates and breakeven
point change if an estimate about one or more other assumptions changes.
For example, suppose the estimated variable manufacturing cost per unit
changes from $75.75 to $95 and the fixed marketing cost is cut from
$75000 to $60000. Help Richard re-evaluate the situation under these new
conditions.
d. Richard has just learned that since SwimEdge is a new product, it must
show at least $50000 in planned profit in the first year or the product line
will be cancelled. At the current selling price of $129.95 and the expected
unit sales of 3000, the profit is much less than this target. One way to
increase profit is to increase revenue. Using Excel, help Richard find out
the interactions between SwimEdge’s selling price and the number of units
sold. What combinations of selling price per unit and number of units sold
will achieve the given target? Another way to increase profits is to reduce
costs. Richard had a conversation with one of the manufacturing managers
about a new cutting machine that could speed up operations and reduce
costs. What if SwimSkin reduced the variable manufacturing costs to $70
per unit? What would happen to its profits then?

4. Preeti Co.’s Marketing Campaign


Preeti Co. manufactures swimming caps for adults and children. Preeti Co.’s
marketing-in-charge, Mr. Lalmohan Ganguly is working on a projected income
statement for Preeti Co.’s four existing product lines which includes adults’
basics, adults’ fancy, children’s basics, and children’s fancy. He wants to evaluate
the projected results of increased marketing campaigns for these product lines.
The table below presents current sales and cost data for each product line (based
on last year’s figures).

Adults’ Adults’ Children’s Children’s


Basic Fancy Basics Fancy
Units sold 10000 10000 5000 7000
Unit sales price Rs. 39.95 Rs. 49.95 Rs. 44.95 Rs. 44.95
Variable Rs. 17 Rs. 17 Rs. 35.75 Rs. 37.75
manufacturing costs
Distribution costs Rs. 2 Rs. 3.50 Rs. 3 Rs. 3
Marketing Rs.7000 Rs.10000 Rs. 8000 Rs. 8000

Each product category has its own marketing plan because each category has a
different primary target market. The estimate for selling and admin costs for these
product lines is Rs. 17500, overall. Preeti Co. is currently in the 35% income tax
bracket. Now, based on market research, Mukul, the staff in the sales and
marketing group, has prepared a table with the data, assuming the sales price stay
the same as in the past year (see table below).

Product Categories
Adults’ Adults’ Children’s Children’s
Basic Fancy Basics Fancy
Option 1:
Continued
marketing
Marketing Rs. 7000 Rs. 10000 Rs. 8000 Rs. 8000
expense
Units sold 10000 10000 5000 7000
Option 2:
Discount
Marketing Rs. 5000 Rs. 10000 Rs. 4000 Rs. 4000
Expense
Units sold 6000 15000 3000 4000
Option 3:
College
Marketing Rs. 1000 Rs. 3500 Rs. 3500 Rs. 4500
Expense
Units sold 12500 6000 3500 4500
Option 4: High
End
Marketing Rs. 5000 Rs. 6000 Rs. 5000 Rs. 5000
Expense
Units sold 6500 6000 5000 5000
Option 5:
Balanced
Marketing Rs. 7500 Rs. 7500 Rs. 5000 Rs. 5000
Expense
Units sold 11500 12500 8000 9000

Because of Preeti Co.’s long-term contracts with suppliers, the purchasing staff
has informed Mr. Ganguly that distribution expense per unit will stay the same
next year. Mr. Ganguly wants to compare the results of maintaining the current
marketing plan to the four options proposed by the sales and marketing staff.
Using your skills in spreadsheet modeling, help Mr. Ganguly analyze all
scenarios.
5. Insect in the Light
You are investing in a new Broadway play, Insect in the Light. You are given
the following information about the play:
i. The fixed cost of opening the play is $5 million
ii. The cost incurred per performance is $1000.
iii. The theatre seats 2000 people, and there are 365 performances per year.
a) Determine how total profit generated by the play varies as the length of the
play run varies between 1 and 5 years, and average occupancy varies between
70% and 90%.
b) Use scenario manager to show the effect of the following scenarios on profit.
Scenario Unit Price Fixed Cost Cost per Occupancy
Performance
Optimistic $150 $3 million $700 90%
Pessimistic $80 $6 million $1500 60%
c) At what occupancy rate will the play be able to generate a profit of $100
million? Assume that the play runs for 2 years.

6. Honeydukes Co.
Refer to Honeydukes Co. problem in Problem Set 01.
a. What is the breakeven value of the open-market grape price?
b. Using a data table, show how profit varies as a function of the price set for
raisins. Cover a range from $1.80 to $2.80 in steps of $0.10.
c. Using a data table, show how profit varies as a function of the price set for
raisins and the amount of grapes brought under contract. Cover a range from
$1.80 to $2.80 (in steps of $0.10) for the price and a range from 0.5 million
pounds to 1.5 million pounds of grapes bought under contract (in steps of 0.1
million).
d. What happens to profit in the following scenarios?
Scenario Open-market Grape Price/lb
Low $0.25
Medium $0.30
High $0.35

You might also like