Problem Set 03: Analysis using Spreadsheets

(Data Tables, Scenario Manager and Goal Seek)

1. Advertising Budget Decision

Refer to Advertising Budget Decision problem in Problem Set 02.
a. What happens to the value of profit if we vary the unit cost from $20 to
$30 in steps of $1?
b. What happens to the value of profit if we vary the unit price from $35 to
$45 in steps of $1?
c. How is profit affected by both Q1 and Q2 advertising? Show the results by
varying Q1 and Q2 advertising from $5000 to $15000 in steps of $1000.
d. How is profit affected by changing unit cost and unit price? Assume that
unit cost varies from $20 to $30 and unit price varies from $35 to $45.
e. What happens to profit in the following scenarios:
Scenario Unit Price Unit Cost Overhead
Optimistic $50 $20 12%
Pessimistic $35 $30 18%
Base $40 $25 15%
f. Determine the breakeven unit cost.

2. Furniture Shop at Phulera

Refer to Furniture Shop at Phulera problem from Problem Set 01.
a. Build a one-way data table for Deepesh to evaluate the profit as well as the
number of revolving chairs sold for various investments in advertising.
c. What are the effects of the following three scenarios on the profit for revolving
chairs? All costs are unit costs.

Scenario Labour Cost Material Cost

High labour cost/high material cost Rs. 500 Rs. 5000
Medium labour cost/medium material cost Rs. 250 Rs. 2500
Low labour cost/low material cost Rs. 100 Rs. 1000

3. Rita’s Teak Furniture Shop

Refer to Rita’s Teak Furniture Shop problem from Problem Set 01.
a. Build a one-way data table for Rita to evaluate how her outcome changes when:
i) the cost of newspaper advertising varies from $1000 to $5000; ii) the cost of
Home Network varies from $2000 to $6000; iii) the discount offered for Option
A varies from 5% to 20%.

4. Honeydukes Co.
Refer to Honeydukes Co. problem in Problem Set 02.
a. What is the breakeven value of the open-market grape price?
b. Using a data table, show how profit varies as a function of the price set for
raisins. Cover a range from $1.80 to $2.80 in steps of $0.10.
c. Using a data table, show how profit varies as a function of the price set for
raisins and the amount of grapes brought under contract. Cover a range from
$1.80 to $2.80 (in steps of $0.10) for the price and a range from 0.5 million
pounds to 1.5 million pounds of grapes bought under contract (in steps of 0.1
million).
d. What happens to profit in the following scenarios?
Scenario Open-market Grape Price/lb
Low $0.25
Medium $0.30
High $0.35

5. Ollivanders Co.
Refer to Ollivanders Co. problem from Problem Set 01.
a. Florian Fortescue, VP of Marketing at Ollivanders Co., is apprehensive
about the sales group’s estimate of the number of units sold. What if the
figure is incorrect? Florian wants to understand what the revenue,
contribution margin and profit before taxes would be if the number of units
sold at $129.95 varied from 500 to 5000, in increments of 500 units. Build
an appropriate data table to help him. Contribution margin is calculated by
subtracting variable costs from revenue and represents the amount of
revenue that contributes to covering the fixed expenses of the company.
b. What happens to the data table in (a), when manufacturing cost per unit
increases from $75.75 to $95 and marketing cost is reduced from $75,000
to $60,000?
c. Florian also wants to see how profit is affected by different selling prices
and units sold. The company has a policy that all prices must end in 9.95.
So, Florian wants to use prices that range from $119.95 to $159.95 with an
increment of $10. As before, units sold can be varied from 500 to 5000, in
increments of 500. Build an appropriate data table for him. What happens
to the profits in this data table if the variable manufacturing cost is reduced
to $70 per unit?
d. Create a data table showing the effect of change of marketing costs from
$25,000 to $125,000 in increments of $25,000 on profit before taxes.
e. How does the profit vary as marketing costs vary from $25,000 to $125,000
in increments of $25,000 and prices vary from $99.95 to $149.95 in
increments of $5?
f. Show the effect on profit for the following three scenarios:
Scenario Unit Price Units Sold
Worst case $99.95 2500
Likely case $129.95 3000
Best case $149.95 4000
6. Flying Ford Taxi Co.
Refer to the Flying Ford Taxi Co. problem in Problem Set 1.
a. How does the revenue vary with variable fee and fixed fee when 1) variable
fee is charged as a percentage of fare and 2) when variable fee is charged per
dispatch? Use the appropriate data table.
b. How does the revenue vary if fleet size varies from 500 to 2000?
c. How does the revenue vary if the average fare varies between $10 and $20?
d. How does the revenue vary if the average number of daily dispatches vary
between 5 to 10?

7. F1 Night City Race

Refer to the F1 Night City Race problem from Problem Set 01.
a. At what room rate, will Tom Hawkes breakeven when occupancy is 80%?
b. How does the profit vary when the government levy varies from 20% to 50%?
Assume the occupancy rate to be 80%.

8. Project Pragati
Refer to Project Pragati problem from Problem Set 01.
a) How does the total profit depend on the percentage increase in product sales?
b) How do the profits for both the versions vary with the prices of the versions?

9. Acme Company
Acme Company is organizing a workshop for aspiring online content creators.
The fixed cost for organizing such workshops in $15,000. It must pay the 10
speakers $700 each and the hotel $300 for food/lodging costs for all participants.
Acme now needs to decide how much to charge each workshop participant (who
is not a speaker). Last year, Acme charged $1200 for each such participant and
the number of such participants who registered for the workshop was 42.
a) Create the base case spreadsheet model to help Acme decide how much to
charge the participants. You can use the last year’s charges and no. of registered
participants to create the base case model.
b) How does Acme’s profit vary if the charge for the participants varies from
$600 to $1500? Use the appropriate data table.
c) How many paying participants must register for Acme to breakeven?

10. Mini Cauldron Cakes

You are trying to determine the price and the advertising for Mini Cauldron
Cakes. The annual demand for the cakes equals 500 − 3𝑝 + 10𝑎0.5, where 𝑝 is
the price of the cakes (per pack) in dollars and 𝑎 is hundreds of dollars spent on
advertising the cakes. The annual fixed cost of selling the cakes is $8,000, and
the unit variable cost of producing the cakes (per pack) is $15.
a. Create the base case spreadsheet model.
 b. How does the profit vary for a variation in price between $10 and $100 per
pack (in steps of $10) and amount of advertising between $100 and $2000 (in
steps of $100)?

11. Ladybird Publishers

Ladybird Publishers is trying to decide the prices to set for hardcover and
paperback versions of the famous singer Jay J’s autobiography. The fixed cost of
producing the hardcover version of the book is $2 million. The variable cost of
producing each hardcover book is $4. The publisher expects to sell 1 million
hardcover copies. The fixed cost of producing the paperback is $200,000. The
variable cost of producing each paperback book is $1. Paperback sales will be
double the hardcover sales. The publisher must make a one-time royalty payment
of $15 million to Jay J.
a. Prepare the base case spreadsheet model, assuming base case prices to be $12
for hardcover version and $3 for paperback.
b. Determine how the profit varies as hardcover sales vary from 100,000 through
1 million copies and the ratio of paperback to hardcover sales varies from 1 to 2.
c. At base case prices, how many hardcovers and paperbacks must be sold to
breakeven?

12. Amazon’s Advertising Decision

Refer to Amazon’s Advertising Decision problem from Problem Set 02.
a. What is the net value of the deal if Amazon is present on 80% of Zignet’s page
views per day? Assume Zignet’s page views to be 50 million in a day.
b. How does the net value of the deal vary if the upfront payment is varied from
$5 million to $15 million (in steps of 1 million)? Use a one-way data table.
c. How does the net value vary when Zignet’s page views are varied from 30
million to 80 million per day (in steps of 10 million) and the retention rate is
varied from 50% to 90% (in steps of 5%)? Use a two-way data table.

13. Medical Supplies at Chhattisgarh

Refer to Medical Supplies at Chhattisgarh problem from Problem Set 02.
i) A check on the stock shows an inventory of 124 packages of A-bandages,
16 packages of B-bandages, 82 packages of C-bandages, 72 rolls of tape,
and 4 hearing aids. What amount will be required for ordering supplies?
ii) How will the amount required for the order vary if the unit cost of a
package of bandages rose by $0.25, $0.50, and so on, up to $3.00 per
package?

14. SwimSkin Co.’s Marketing Campaign

SwimSkin Co.’s VP of marketing, Richard Rayburn is working on a projected
income statement for SwimSkin’s four existing product lines which includes
adults’ racers, adults’ two-piece suits, children’s racers and children’s two-piece
suits. He wants to evaluate the projected results of increased marketing
campaigns for these product lines. The table below presents current sales and cost
data for each product line (based on last year’s figures).

Adults’ Adults’ Children’s Children’s

Racers Two- Racers Two-Piece
Piece Suits
Suits
Units sold 10000 10000 5000 7000
Unit sales price $39.95 $49.95 $44.95 $44.95
Variable $17 $17 $35.75 $37.75
manufacturing costs
Distribution costs $2 $3.50 $3 $3
Marketing $7000 $10000 $8000 $8000

Each product category has its own marketing plan because each category has a
different primary target market. The estimate for selling and admin costs for these
product lines is $17500, overall. SwimSkin is currently in the 35% income tax
bracket. The payroll estimate is a little complicated. At last year’s sales volume,
the apparel operations manager estimated that it took equivalent of five
employees to produce the products and process their sales. The operations
manager forecasts that if the total swimsuit sales reach 200,000 units, the
equivalent of one additional half-time employee will be needed to handle the
workload. The operations manager has also forecasted that for each additional
50,000 units sold, the equivalent of one half-time employee will be needed. Now,
based on market research, staff in the sales and marketing groups have prepared
a table with the swimsuit data, assuming the sales price stay the same as in the
past year (see table below).

Product Categories
Adults’ Adults’ Children’s Children’s
Racers Two-Piece Racers Two-Piece
Suits Suits
Option 1:
Continued
marketing
Marketing $7000 $10000 $8000 $8000
expense
Units sold 10000 10000 5000 7000
Option 2:
Discount
 Marketing $5000 $10000 $4000 $4000
Expense
Units sold 6000 15000 3000 4000
Option 3:
College
Marketing $1000 $3500 $3500 $4500
Expense
Units sold 12500 6000 3500 4500
Option 4: High
End
Marketing $5000 $6000 $5000 $5000
Expense
Units sold 6500 6000 5000 5000
Option 5:
Balanced
Marketing $7500 7500 5000 5000
Expense
Units sold 11500 12500 8000 9000

Because of SwimSkin’s long-term contracts with suppliers, the purchasing staff

has informed Richard that distribution expense per unit will stay the same next
year. The human resources staff estimates that the average salary for employees
will increase to $39,100 from the current value of $38,500. Richard wants to
compare the results of maintaining the current marketing plan to the four options
proposed by the sales and marketing staff. Using your skills in spreadsheet
modeling, help Richard analyze all scenarios.

15.Insect in the Light

You are investing in a new Broadway play, Insect in the Light. You are given
the following information about the play:
i. The fixed cost of opening the play is $5 million
ii. The cost incurred per performance is $1000.
iii. The theatre seats 2000 people, and there are 365 performances per year.
a) Determine how total profit generated by the play varies as the length of the
play run varies between 1 and 5 years, and average occupancy varies between
70% and 90%.
b) Use scenario manager to show the effect of the following scenarios on profit.
Scenario Unit Price Fixed Cost Cost per Occupancy
Performance
Optimistic $150 $3 million $700 90%
Pessimistic $80 $6 million $1500 60%
c) At what occupancy rate will the play be able to generate a profit of $100
million? Assume that the play runs for 2 years.