PLEASE FIND % CHANGE IN OPERATING INCOME (LAST QUESTION). (BLUE SQUARE)

PLEASE DO 1,2,3 UNDER ADVISING CLIENT SHEET.

PLEASE FIND % CHANGE IN OPERATING INCOME (LAST QUESTION).

PLEASE DO #1,2,3 UNDER ADVISING CLIENT SHEET ^^^^^

(the enlarged version of sheets below) v

You have been hired by Jake 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 one area of the spreadsheet (blue box). All other calculations in the model will reference the assumptions (blue box) such that if any assumption changes, the effect will ripple through the entire model. To accomplish this goal, you will use FORMULAs, rather than numbers, in every other cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box. 1) Complete the assumptions (blue box) based on the data about Jake's business. Identify 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 boxes) assuming Jake only sells either Product #1 (Launch-its) OR Product #2 (Treat-times). Check figures: B/E Product #1 = 250 units; B/E Product #2= 125 units 3) Complete the pro forma CM Income Statement for the month of June (green box). HINT: On product line income statements such as this, the fixed costs are only listed in the total column. Make sure you also show the totals for all other line items. Finally, calculate the overall WACM% for the company. Check figure: Operating income = $900 WACM% = 48% 4) Calculate the weighted average contribution margin (WACM) per unit (in orange box). Check figure: WACM/unit = $8.00 5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gray box). 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. Check figures: B/E Product #1 = 125; B/E Product #2=63 6) Use the WACM/unit to calculate the total number of units needed to achieve Jake'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 #1 =792; B/E Product #2= 396 The purpose of this project 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. 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. 2 Reconnecting Launch $ 3 Launch-it $10.00 6.00 109 J's Pet Supplies Pro Forma Contribution Margin Income Statement For the month anding lune 30 4 ASSUMPTIONS Product #1 Sales price per unit Variable costs per unit: Product Cost Sales Comission Shipping Total variable cost per unit Product 1 Unit CM CMS Breakeven point in units in sales revenue 250.00 2500.00 $ $1.00 SL.0 $2.00 54.00 Products $10.00 6.50 200 $2,500.00 $1.320.00 Product 2 $40.00 23.10 100 $5,000.00 $2,310.00 9 10 11 12 Target profit volume in units in sales revenue Selling Price Contribution per unit Product Volume Total Revenue Total Contribution Fase Cost Operating Income WACM Total Contribution/Total Revenue) $ $ 1.583.33 15.833.30 1200 Total $50.00 29.70 300 $7,500.00 $3.6.30.00 S1.500.00 $900.00 489 Monthly volume Treat time $40.00 Treat time $ 13 14 15 16 17 10 10 Product 2: Sales price per unit Variable costs per unit: Product Cost Shipping Cost Sales Commission Total variable cost per unit 21.00 1095 $7.00 S8.00 $4.00 Product 2 Unit CM CMS Breakeven point in units an sales revenue 125.00 5.000.00 Calculation of Weighted average CM per unit Products Product 12 6.00 21.00 200.00 100.00 1 320.00 2,310.00 $19.00 Total 27.00 300.00 3,630.00 Contribution Product Volume Total Contribution $ 21 Monthly volume 100 Target profit volume in units in sales revenue 452.38 WACM $ 8.00 $ 2.29 $ 10.29 $ $ 18.095 20 Feed costs per month: Trade Show Entry Fee Sales Staff Cost Total fixed costs per month $500.00 $1,000.00 $1,500.00 Multiproduct Breakeven point Product 32 Products 125 $1.250.00 188 $3,770.00 Target profit per month S8.000.00 Sales revenue at breakeven $2.520.00 Expected change in volume) 5% Multiproduct Target profit point: Product 32 Product 31 792 57,920.00 Total 1188 $23,750.00 Sales revenue at target profit $15.840.00 24 Margin of Safety in 51 $19,990.00 Margin of Safety 84.203 Operating Leverage Factor 4.0396 Expected change in operating income 6 7 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. 8 9 NEW ORIGINAL Change 10 Operating income 11 1. Save a copy of your original model to a new spreadsheet 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. Brief explanation: WACM percentage 12 13 14 MOS% 15 16 17 18 Operating income 19 Brief explanation: 20 2. Save a copy of your original model to a new spreadsheet 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 21 22 Units to earn target profit 23 24 25 26 27 Operating income 28 Brief explanation: 29 Operating leverage factor 30 3. Save a copy of your original model to a new spreadsheet 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. 31 Expected % change in op inc 32 33 34 Business & Directions Starting file Advising client - Launch-it $ 6.00 10% Product #1 Unit CM CM % Breakeven point: -in units -in sales revenue 250.00 2,500.00 $ Target profit volume: -in units -in sales revenue $ $ 1,583.33 15,833.30 Treat-time $ 21.00 10% Product #2 Unit CM CM % Breakeven point: -in units -in sales revenue 125.00 5,000.00 $ Target profit volume: -in units -in sales revenue $ $ 452.38 18,095.20 Launch-it $10.00 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Product Cost Sales Comission Shipping Total variable cost per unit $1.00 $1.00 $2.00 $4.00 Monthly volume 200 Treat-time $40.00 Product #2: Sales price per unit Variable costs per unit: Product Cost Shipping Cost Sales Commission Total variable cost per unit $7.00 $8.00 $4.00 $19.00 Monthly volume 100 Fixed costs per month: Trade Show Entry Fee Sales Staff Cost Total fixed costs per month $500.00 $1,000.00 $1,500.00 Target profit per month $8,000.00 Expected change in volume (%) 5% Contribution Product Volume Total Contribution Calculation of Weighted average CM per unit Product #1 Product #2 6.00 21.00 200.00 100.00 1,320.00 2,310.00 Total 27.00 300.00 3,630.00 WACM/unit $ 8.00 $ 2.29 $ 10.29 Multiproduct Breakeven point: -in units Sales revenue at breakeven Product #1 125 $1,250.00 Product #2 63 $2,520.00 Total 188 $3,770.00 Multiproduct Target profit point: -in units Sales revenue at target profit Product #1 792 $7,920.00 Product #2 396 $15,840.00 Total 1188 $23,760.00 Margin of Safety (in $) $19,990.00 Margin of Safety % 84.20% Operating Leverage Factor 4.03% Expected % change in operating income (%) You have been hired by Jake 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 one area of the spreadsheet (blue box). All other calculations in the model will reference the assumptions (blue box) such that if any assumption changes, the effect will ripple through the entire model. To accomplish this goal, you will use FORMULAs, rather than numbers, in every other cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box. 1) Complete the assumptions (blue box) based on the data about Jake's business. Identify 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 boxes) assuming Jake only sells either Product #1 (Launch-its) OR Product #2 (Treat-times). Check figures: B/E Product #1 = 250 units; B/E Product #2= 125 units 3) Complete the pro forma CM Income Statement for the month of June (green box). HINT: On product line income statements such as this, the fixed costs are only listed in the total column. Make sure you also show the totals for all other line items. Finally, calculate the overall WACM% for the company. Check figure: Operating income = $900 WACM% = 48% 4) Calculate the weighted average contribution margin (WACM) per unit (in orange box). Check figure: WACM/unit = $8.00 5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gray box). 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. Check figures: B/E Product #1 = 125; B/E Product #2=63 6) Use the WACM/unit to calculate the total number of units needed to achieve Jake'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 #1 =792; B/E Product #2= 396 The purpose of this project 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. 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. 2 Reconnecting Launch $ 3 Launch-it $10.00 6.00 109 J's Pet Supplies Pro Forma Contribution Margin Income Statement For the month anding lune 30 4 ASSUMPTIONS Product #1 Sales price per unit Variable costs per unit: Product Cost Sales Comission Shipping Total variable cost per unit Product 1 Unit CM CMS Breakeven point in units in sales revenue 250.00 2500.00 $ $1.00 SL.0 $2.00 54.00 Products $10.00 6.50 200 $2,500.00 $1.320.00 Product 2 $40.00 23.10 100 $5,000.00 $2,310.00 9 10 11 12 Target profit volume in units in sales revenue Selling Price Contribution per unit Product Volume Total Revenue Total Contribution Fase Cost Operating Income WACM Total Contribution/Total Revenue) $ $ 1.583.33 15.833.30 1200 Total $50.00 29.70 300 $7,500.00 $3.6.30.00 S1.500.00 $900.00 489 Monthly volume Treat time $40.00 Treat time $ 13 14 15 16 17 10 10 Product 2: Sales price per unit Variable costs per unit: Product Cost Shipping Cost Sales Commission Total variable cost per unit 21.00 1095 $7.00 S8.00 $4.00 Product 2 Unit CM CMS Breakeven point in units an sales revenue 125.00 5.000.00 Calculation of Weighted average CM per unit Products Product 12 6.00 21.00 200.00 100.00 1 320.00 2,310.00 $19.00 Total 27.00 300.00 3,630.00 Contribution Product Volume Total Contribution $ 21 Monthly volume 100 Target profit volume in units in sales revenue 452.38 WACM $ 8.00 $ 2.29 $ 10.29 $ $ 18.095 20 Feed costs per month: Trade Show Entry Fee Sales Staff Cost Total fixed costs per month $500.00 $1,000.00 $1,500.00 Multiproduct Breakeven point Product 32 Products 125 $1.250.00 188 $3,770.00 Target profit per month S8.000.00 Sales revenue at breakeven $2.520.00 Expected change in volume) 5% Multiproduct Target profit point: Product 32 Product 31 792 57,920.00 Total 1188 $23,750.00 Sales revenue at target profit $15.840.00 24 Margin of Safety in 51 $19,990.00 Margin of Safety 84.203 Operating Leverage Factor 4.0396 Expected change in operating income 6 7 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. 8 9 NEW ORIGINAL Change 10 Operating income 11 1. Save a copy of your original model to a new spreadsheet 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. Brief explanation: WACM percentage 12 13 14 MOS% 15 16 17 18 Operating income 19 Brief explanation: 20 2. Save a copy of your original model to a new spreadsheet 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 21 22 Units to earn target profit 23 24 25 26 27 Operating income 28 Brief explanation: 29 Operating leverage factor 30 3. Save a copy of your original model to a new spreadsheet 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. 31 Expected % change in op inc 32 33 34 Business & Directions Starting file Advising client - Launch-it $ 6.00 10% Product #1 Unit CM CM % Breakeven point: -in units -in sales revenue 250.00 2,500.00 $ Target profit volume: -in units -in sales revenue $ $ 1,583.33 15,833.30 Treat-time $ 21.00 10% Product #2 Unit CM CM % Breakeven point: -in units -in sales revenue 125.00 5,000.00 $ Target profit volume: -in units -in sales revenue $ $ 452.38 18,095.20 Launch-it $10.00 ASSUMPTIONS Product #1: Sales price per unit Variable costs per unit: Product Cost Sales Comission Shipping Total variable cost per unit $1.00 $1.00 $2.00 $4.00 Monthly volume 200 Treat-time $40.00 Product #2: Sales price per unit Variable costs per unit: Product Cost Shipping Cost Sales Commission Total variable cost per unit $7.00 $8.00 $4.00 $19.00 Monthly volume 100 Fixed costs per month: Trade Show Entry Fee Sales Staff Cost Total fixed costs per month $500.00 $1,000.00 $1,500.00 Target profit per month $8,000.00 Expected change in volume (%) 5% Contribution Product Volume Total Contribution Calculation of Weighted average CM per unit Product #1 Product #2 6.00 21.00 200.00 100.00 1,320.00 2,310.00 Total 27.00 300.00 3,630.00 WACM/unit $ 8.00 $ 2.29 $ 10.29 Multiproduct Breakeven point: -in units Sales revenue at breakeven Product #1 125 $1,250.00 Product #2 63 $2,520.00 Total 188 $3,770.00 Multiproduct Target profit point: -in units Sales revenue at target profit Product #1 792 $7,920.00 Product #2 396 $15,840.00 Total 1188 $23,760.00 Margin of Safety (in $) $19,990.00 Margin of Safety % 84.20% Operating Leverage Factor 4.03% Expected % change in operating income (%)