CVP Modeling prolect purpose of this project is to give you experience creating a profitability analysis that can be used to determine the effects of changing business conditions on a client's financial position. The Managers often want to the fits eamed from a product cover the cost of resources used to create it Break-even an alysis is how we determine this level. The point at which total sales revenues covers the costs of committed resources is called the break-even point. In addition to knowing the break-even pre-set target-profit level. may also want to know the point at which sales volume reaches a This tool will help you perform both of these calculations. The determine how many where your goal is to determine how many units you must sell to reach a pre-defined profit level. The difference between the two is that at break-even your target-profit is zero, whereas when you specify a target-profit that is greater than zero, you are setting your goal above the break-even point first is break-even analysis where your goal is to units you must sell to recover all of your fixed costs. The second is target-profit analysis Your challenge 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 Cornell Tool Manufacturing wants to begin selling a new pair of hand-held pliers in the upcoming fiscal year. They want to know how many hand-held pliers they will have to sell in order to break-even on this investment materials and equipment. Management has provided you with the following data: in Annual Fixed costs: Metal molding maching: $120,000 Plastic grip molder: $5,000 Sander: $25,000 Employee costs: $0 Variable costs (per unit): Raw material: $1.75 Packaging material: $0.50 Grip material: $1.00 Shipping: $0.75 Sales commission: 5% of sales 3 Since this is a new company, the only employee currently being paid is Sally, the marketing manager. Sally 4 estimates that the company can sell its new pliers for $20.00 per unit. She further projects that they will, on s average, produce and sell 2,000 units per month. The goal is that they will break-even and start to earm a profit 36 37 38 39 40 41 42 within the first year. The target-profit level for the end of the first fiscal year is $190,000