Question
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
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 clients financial position. Your goal will be to use Excel in such a way that changes to the assumptions will correctly ripple through the entire profitability analysis.
Business Description
The Stackpole Company retails two products, a standard and deluxe version of a luggage carrier.
The standard carrier sells for $28, has variable costs of $18, and direct fixed costs of $1,000,000. The deluxe model sells for $50, has variable costs of $30, and direct fixed costs of $1,000,000. The company has common fixed costs of $250,000. The anticipated sales mix for the company is 3:1 or 75/25. The actual level of sales units currently is 250,000 and your target income is $250,000. You expect sales to rise 10% in the coming year.
Directions:
You have been hired to build a CVP model to help the company understand the impact of business conditions on operating income. Your model should include:
- breakeven in units with a pro forma income statement
- units sales for a target income of $250,000 with a pro forma income statement
- an income statement reflecting actual current sales, margin of safety in dollars and %, and degree of operating leverage.
- Your model should have the capability of computing B/E, target income, MOS, DOL, and predicting change in income based on a change in sales. Create a dashboard to show these variables.
Once you have built the model, use the model to determine changes to the dashboard variables. In a report to me, your CEO, show the original variables, the changed variables and explain why the change occurred.
- Sales mix changes to 25/75
- Common fixed costs increase by $100,000
- Reduce VC of the standard carrier to $10 per unit
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