Expert answer:Calculate fixed costs, variable costs, breakeven p
Solved by verified expert:Calculate fixed costs, variable costs, breakeven point etc, sheet attached!
cvp_project__jake_s_3_.xlsx
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CVP Modeling project
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 company’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 company 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.
Business Description
After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. H
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 pe
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
to 10% of revenue. Jake will also spend $500 per month on trade-show entry fees. Jake is purchasing the produc
in Mexico. Launch-its cost $1 each; Treat-times cost $7 each. Shipping and handling on the Launch
and handling on the Treat-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid
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 $8,000 per month. He believes volume may grow at a rate
Directions
You have been hired by Jake to build a CVP model that will help him understand the impact of business conditions
income. (See “Starting File” worksheet.) In your model, all of the original assumptions will be listed in one area of
(blue box). All other calculations in the model will reference the assumptions (blue box) such that if any assumpti
effect will ripple through the entire model. To accomplish this goal, you will use FORMULAs, rather than number
cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box.
FORMATTING conventions to use throughout project:
– Round all UNITS to the nearest whole unit. Use the “decrease decimals” button on your tool bar rather than the
– Show all MONETARY amounts as dollars and cents. Round to the nearest cent. ($x.xx). Use the “decrease decima
than the rounding function.
– Show all percentages as %, not as decimals. (x%, not .xx)
– Right justify all cells (numbers should be to the right side of the cell, not in the middle or left)
1) Complete the assumptions (blue box) based on the data about Jake’s business. Identify and list all variable cos
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 Produc
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 incom
as this, the fixed costs are only listed in the total column. Make sure you also show the totals for all other line item
calculate the overall weight average contribution margin (WACM) % for the company.
Check figure: Operating income = $900 WACM% = 48%
4) Calculate the 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 gr
calculate the number of EACH type of product needed to breakeven. Finally, calculate the sales revenue associa
5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gr
calculate the number of EACH type of product needed to breakeven. Finally, calculate the sales revenue associa
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 colum
gray box). THEN, calculate the number of EACH type of product needed to achieve the target profit. Finally, cal
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
7) Calculate the margin of safety (MOS) using June sales as the expected sales (purple box). Calculate the MOS in t
revenue and as a percentage. Also calculate the current operating leverage factor (round to the nearest 2 decima
to determine the expected percentage change in operating income stemming from an expected change in sales vo
Check figures: MOS%= 38%; Operating leverage factor= 2.67
plies at trade shows. He has two
aces his paw on the pedal. The treat
1,000 per month plus a commission equal
purchasing the products from a supplier
the Launch-its will cost $2 each; Shipping
dling costs will be paid by Jake, not the
erations (June).
me may grow at a rate of 5% a month.
of business conditions on his operating
e listed in one area of the spreadsheet
ch that if any assumption changes, the
s, rather than numbers, in every other
mptions box.
ool bar rather than the Rounding function.
e the “decrease decimals” button rather
nd list all variable costs separately and
Launch-its) OR Product #2 (Treat -times).
On product line income statements such
ls for all other line items. Finally,
L column in the first gray box). THEN,
sales revenue associated with this
Due 10/31/2017
L column in the first gray box). THEN,
sales revenue associated with this
et profit (TOTAL column in the second
get profit. Finally, calculate sales
Calculate the MOS in terms of sales
o the nearest 2 decimal places) and use it
cted change in sales volume.
CVP Model
ASSUMPTIONS
Product #1:
Sales price per unit
Variable costs per unit:
Launch-it
Total variable cost per unit
Total variable cost per unit
Monthly volume
Fixed costs per month:
Total fixed costs per month
Target profit per month
Expected change in volume (%)
Launch-it
Target profit volume:
-in units
-in sales revenue
Monthly volume
Product #2:
Sales price per unit
Variable costs per unit:
Product #1
Unit CM
CM %
Breakeven point:
-in units
-in sales revenue
Treat-time
Product #2
Unit CM
CM %
Breakeven point:
-in units
-in sales revenue
Target profit volume:
-in units
-in sales revenue
Treat-time
CVP Model
Jake’s Pet Supplies
Pro Forma Contribution Margin Income Statement
For the month ending June 30
Product #1
Product #2
Total
Calculation of Weighted average CM per unit
Product #1
Product #2
Total
WACM %
WACM/unit
Multiproduct Breakeven point:
-in units
Sales revenue at breakeven
Product #1
Product #2
Total
Multiproduct Target profit point:
-in units
Sales revenue at target profit
Product #1
Product #2
Total
Margin of Safety (in $)
Margin of Safety %
Operating Leverage Factor
Expected % change in operating income (%)
Grading Rubric
Points possible
Original Assumption worksheet
Formatting conventions followed:
units
monetary amounts
percentages
right justified
2
2
2
2
ALL figures used formulas and cell
references except in blue box
16
All figures are correct (check figures
given in directions)
16
Total
40
…
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