CVP Problem
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.
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.
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.
**Tax Rate 35%
Directions:
1a) Complete the input area with the product and cost assumptions.
1b) Build a model to calculate the breakeven for each product separately, both in units and dollars (make the assumption that the other product does not exist).
1c) Create a proforma income statment with a column for each product and a total column. Product columns should include revenue, variable costs, and contribution margin. The total column will show the fixed costs, operating income, taxes, and net income. Base this statement on the original product assumptions.
1d) Calculate the weighted average contribution margin (WACM) per unit.
1e) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven . 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. Design your presentation of this data to make it clear to the reader what you are doing.
1f) Use the WACM/unit to calculate the total number of units needed to achieve Jake's target profit. 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.
1g) Calculate the MOS using June sales as the expected sales. Calculate the MOS in terms of sales revenue and as a percentage. Also calculate the current operating leverage factor (round to the nearest 2 decimal places) and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume.
1h) Change name of worksheet to "Original Assumptions".
1i) Make sure you have cleaned up your worksheet using the formatting conventions listed above.
1j) Create a worksheet for each of the following three scenarios:
Supplier cost increase (20% increase); show impact on operating income, WACM %, and MOS %
New sales mix (sell 175 treat times and 125 launch-its); show impact on operating income, WACM/unit, and units to earn the target profit
Alternative contract (new work contract of $1,500 per month plus 5% of revenue instead of $1,000 plus 10% of revenue); show impact on operating income, operating leverage, and expected % change in operating income.
thats all the information i have. what else is required?
i reposted the question on a different thread. please let me know if that helps
$6 Launch-it $10 Step #1 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Product Cost Sales Commission Shipping Total variable cost per unit Step #2 - Product Analysis Product #1 Launch-it Unit CM CM % Breakeven point: -in units -in sales revenue 60% $1 125.00 1,250.00 $1 $2 $4 Target profit volume: -in units -in sales revenue Monthly volume 200 Treat-Time $30 Treat-time Product #2: Sales price per unit Variable costs per unit: Product Cost Sales Commision Shipping Total variable cost per unit $12 40% | | $7 $3 $8 $18 Product #2 Unit CM CM % Breakeven point: -in units -in sales revenue 62.50 1,875.00 Monthly volume 100 Target profit volume: -in units -in sales revenue Fixed costs per month: Work Contract Entry Fees Total fixed costs per month $1,000 $500 $1,500 Target profit per month $8,000 Expected change in volume (%) 5% Jake's Pet Supplies Pro Forma Contribution Margin Income Statement For the month ending June 30 Product #1 Product #2 Total Sales price Less: Variable Cost Contribution Margin Less: Fixed Cost Operating Income WACM % Step #4 Calculation of Weighted average CM per unit Product #1 Product #21 Total CM/Unit Sale Contribution Margin WACM/unit Step #5 Product #1 Product #2 Total Multiproduct Breakeven point: -in units Sales revenue at breakeven Step #6 Product #1 Product #2 Total Multiproduct Target profit point: -in units Sales revenue at target profit Step #7 Margin of Safety (in $) Margin of Safety % Operating Leverage Factor Expected % change in operating income (%) 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. 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 press enter. NEW ORIGINAL Change Operating income Brief explanation: 1. Save a copy of your original model to a new worksheet 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. WACM percentage MOS% Operating income Brief explanation: 2. Save a copy of your original model to a new worksheet 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. WACM/unit Units to earn target profit Operating income Brief explanation: Operating leverage factor 3. Save a copy of your original model to a new worksheet 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. Expected % change in op inc $6 Launch-it $10 Step #1 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Product Cost Sales Commission Shipping Total variable cost per unit Step #2 - Product Analysis Product #1 Launch-it Unit CM CM % Breakeven point: -in units -in sales revenue 60% $1 125.00 1,250.00 $1 $2 $4 Target profit volume: -in units -in sales revenue Monthly volume 200 Treat-Time $30 Treat-time Product #2: Sales price per unit Variable costs per unit: Product Cost Sales Commision Shipping Total variable cost per unit $12 40% | | $7 $3 $8 $18 Product #2 Unit CM CM % Breakeven point: -in units -in sales revenue 62.50 1,875.00 Monthly volume 100 Target profit volume: -in units -in sales revenue Fixed costs per month: Work Contract Entry Fees Total fixed costs per month $1,000 $500 $1,500 Target profit per month $8,000 Expected change in volume (%) 5% Jake's Pet Supplies Pro Forma Contribution Margin Income Statement For the month ending June 30 Product #1 Product #2 Total Sales price Less: Variable Cost Contribution Margin Less: Fixed Cost Operating Income WACM % Step #4 Calculation of Weighted average CM per unit Product #1 Product #21 Total CM/Unit Sale Contribution Margin WACM/unit Step #5 Product #1 Product #2 Total Multiproduct Breakeven point: -in units Sales revenue at breakeven Step #6 Product #1 Product #2 Total Multiproduct Target profit point: -in units Sales revenue at target profit Step #7 Margin of Safety (in $) Margin of Safety % Operating Leverage Factor Expected % change in operating income (%) 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. 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 press enter. NEW ORIGINAL Change Operating income Brief explanation: 1. Save a copy of your original model to a new worksheet 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. WACM percentage MOS% Operating income Brief explanation: 2. Save a copy of your original model to a new worksheet 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. WACM/unit Units to earn target profit Operating income Brief explanation: Operating leverage factor 3. Save a copy of your original model to a new worksheet 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. Expected % change in op inc
