M CVP Modeling Business Simulation The purpose of this business simulation 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. Check figures are provided along the way. 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. a B 4 5 5 7 Directions You have been hired by ale 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 in one area of the spreadsheetbluebox). All other calculations in the model will reference the assumptions(bluebox) such that if any assumption changes the effect will eipple through the entire model. To accomplish this goal, you will use FORMULAS, rather than numbers, in every other call in the worlohet. In other words, the only place you will type numbers is the blue assumptions box FORMATTNG conventions to use throughout project Round all units to the nearest whole unit Use the "decrease decimais" button on your toolbar rather than the Rounding function - Show all MONETARY amounts a dollars and cents, Round to the nearest cant (SA). Use the decrease decimalr" button rather than the rounding function. - Show all percentages as not as decimals. x, not - Right justify all cells (numbers should be to the right side of the cell, not in the middle ar left 1) Complete the assumptions (blue bon) based on the data about sake'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 boues) assuming Jake ONLY seis ether Pro 31 (Launch] OR Product 22 (Treat times) Check figures. B/ Product 1 250 units, b/Product 125 units 3) Complete the proforma (expected) CM Income Statement for the month of une igreen box. HINT: On product line income statements such as this, the fixed costs are only listed in the total columnes since these relate to the company as a whole, not a particular product. Make sure you also show the totals for all other line items. Finally, takulate the OVERALL WACM for the company. How? Remember the formule. It's the same here, but it becomes the weighted average simply due to the fact that the income statement is ALREADY WEIGHTED by the number of each product expected to be sold Check figure: Operating income = $900 WACM = 48% 4) Calculate the weighted average contribution margir per unit (in orange box. There is more than one acceptable way to Find this answer Check figure WACM/unit=58.00 S] Use the WACM/unit to calculate the TOTAL umber of units needed to breakeven (TOTAL column in the first gray boal THEN, calculate the number of EACH type of product needed to breakeven Fri, calculate the sales revenue associated with this volume for EACH product, and then the sales revenue to breakeven in total Check figures w/E Product 125, BV Products 6) Use the WACW/unit to calculate the total number of units needed to achieve sake'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 11 B/E Product 12396 7) Calculate the mos using sune sales as the expected sales purple bor), calculate the MOS in terms of sales revenue and as a percentage Also calculate the current operating leverapefactor round to the nearest 2 decimal prices and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume. Check liges MOSS Sust: Operating beverage factor: 2.0 Bj Changename of worksheet to original Assumptions 9 Make sure you have cleaned up your worksheet using the formatting conventions listed above A B C D E F ASSUMPTIONS Launch-it Launch-it Product #1: Sales price per unit Variable costs per unit: Product #1 Unit CM CM % Breakeven point: in units -in sales revenue Total variable cost per unit Target profit volume: -in units -in sales revenue Monthly volume 2 3 Treat-time 1 Product #2: Sales price per unit Variable costs per unit: Product #2 Treat-time Unit CM CM % Breakeven point: -in units -in sales revenue Total variable cost per unit Monthly volume Target profit volume: in units in sales revenue Fixed costs per month: 5 7 B 9 0 1 2 3 4 5 6 27 28 09 30 81 Total fixed costs per month Target profit per month Expected change in volume (%) Jake's Pet Supplies Pro Forma Contribution Margin Income Statement For the month ending June 30 Product 81 Product #2 Total Hint on Pro Forma Income Statement: The fixed costs of the business should only go in the TOTAL column since it doesn't make any sense to allocate them between the different product lines WACM X The WACM % should only be calculated in TOTAL, once you have completed the pro forma income statement. Calculation of weighted average OM per unit Product Product 2 Total WACM/unit HINTS for orange and gray boxes. Read the directions again. See class lecture for Professor Ford's multi-product example Total Product 2 Product Multiproduct Breakeven point: -in units Sales revenue at breakeven Product Product 12 Total Multiproduct Target profit point: -in units Sales revenue at tarret profit Margin of Safety tin ) Margin of Safety % Operating Leverage Factor Expected change in operating income Once you the model ist Yesteach ustions partenaria. All come to be made to the DRCELINE: rocevarom die wortet the back to the work NEW DRUGAL 1. Swecowy oral model to the rest Say thered to the cost of the products by 20% What is the coming income? 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