Cox Electric Breakeven Analysis

Parameters

Revenue per Unit $0.65 Fixed Costs $10,000.00 Material Cost per Unit $0.15 Labor Cost per Unit $0.10

Model

Production Volume

Total Revenue

Material Cost Labor Cost Fixed Cost Total Cost

Profit

Cox Electric makes electronic components. The Excel file coxelectric.xlsx contains estimations

for a new design of one of its products. The parameters and their estimated values are:

Fixed costs = $10,000

Material cost per unit = $0.15

Labor cost per unit = $0.10

Revenue per unit = $0.65

Note that fixed cost is incurred regardless of the amount produced. Per-unit material and labor cost

together make up the variable cost per unit. Assuming that Cox Electric sells all the products it

produces, profit is calculated by subtracting the fixed cost and total variable cost from total

revenue.

Prepare an Excel file with the following computations

1. Implement a model for calculating profit in Excel. If Cox Electric makes 12,000 units of the

new product, what is the resulting profit?

2. Construct a One-Way Data Table with production volume as the column input and profit as

the output. Vary production volume from 0 to 100,000 in increments of 10,000. In which

interval of production volume does breakeven occur? (Hint: Breakeven occurs when profit

goes from a negative to a positive value; that is, breakeven is when total revenue = total cost,

yielding a profit of zero.)

3. Construct a Two-Way Data Table with production volume as the column input, material cost

per unit as the row input, and profit as the output. Vary production volume from 0 to 100,000

in increments of 10,000. Vary material cost per unit with values $0.15, $0.20, $0.25, and $0.30.

4. Use Goal Seek to find the exact breakeven point. Use the values in Question 1 as the estimated

values of the parameters. (Assign Set cell: equal to the location of profit, To value: = 0, and

By changing cell: equal to the location of the production volume in your model.)