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Product #1 Launch-it Unit CM CM % CM% Breakeven point: -in units in sales revenue Target profit volume: in units in sales revenue Product #2 Treat-time Unit CM CM % Breakeven point: in units in sales revenue Target profit volume: in units -in sales revenue

Product #1 Launch-it Unit CM CM % CM% Breakeven point: -in units in sales revenue Target profit volume: in units in sales revenue Product #2 Treat-time Unit CM CM % Breakeven point: in units in sales revenue Target profit volume: in units -in sales revenue

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2. CVP Modeling project Directions 3 4. 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. 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 in 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. 6. 9. 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 Rounding function. Show all MONETARY amounts as dollars and cents. Round to the nearest cent. (Sx x). Use the "decrease decimals" button rather 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) 10 Business Description 11 After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products: 13 14 15 Product 1: "Launch-it"- a tennis ball thrower that will sell for $11. 16 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 $31. 17 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. 18 19 Costs: Jake has hired an employee to work the trade show booths. The work contract is $1,600 20 2) Complete the Product Analysis (yellow boxes) assuming Jake ONLY sells either Product #1 (Launch-its) OR Product #2 (Treat- times). per month plus a commission equal to 109% of revenue. Jake will also spend $800 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. 21 22 23 Check figures: B/E Product #1 = 348 units; B/E Product #2= 186 units 24 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. 25 Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June). 26 27 28 Check figure: Operating income $270 WACM% = 50% Jake's financial goal is to earn an operating income of $10,000 per month. He believes volume 29 may grow at a rate of 5% a month. 4) Calculate the weighted average contribution margin (WACM) per unit (in orange bax). 30 31 Check figure: WACM/unit = $8.9 32 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. 33 34 35 36 37 Check figures: B/E Product #1 = 180; B/E Product #2= 90 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. 38 39 40 41 42 Check figures: Number of units of Product #1 =929; Number of units of Product #2= 464 43 7) Calculate the MOS using June sales as the expected sales (purple box). Calculate the MOS in terms of sales revenue and as a percentage. Also calculate the current operating leverage factor (round to the nearest 2 decimal places) and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume. 44 45 46 47 Chock finroes 48 Grading Rubric
Transcribed Image Text:2. CVP Modeling project Directions 3 4. 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. 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 in 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. 6. 9. 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 Rounding function. Show all MONETARY amounts as dollars and cents. Round to the nearest cent. (Sx x). Use the "decrease decimals" button rather 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) 10 Business Description 11 After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products: 13 14 15 Product 1: "Launch-it"- a tennis ball thrower that will sell for $11. 16 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 $31. 17 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. 18 19 Costs: Jake has hired an employee to work the trade show booths. The work contract is $1,600 20 2) Complete the Product Analysis (yellow boxes) assuming Jake ONLY sells either Product #1 (Launch-its) OR Product #2 (Treat- times). per month plus a commission equal to 109% of revenue. Jake will also spend $800 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. 21 22 23 Check figures: B/E Product #1 = 348 units; B/E Product #2= 186 units 24 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. 25 Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June). 26 27 28 Check figure: Operating income $270 WACM% = 50% Jake's financial goal is to earn an operating income of $10,000 per month. He believes volume 29 may grow at a rate of 5% a month. 4) Calculate the weighted average contribution margin (WACM) per unit (in orange bax). 30 31 Check figure: WACM/unit = $8.9 32 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. 33 34 35 36 37 Check figures: B/E Product #1 = 180; B/E Product #2= 90 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. 38 39 40 41 42 Check figures: Number of units of Product #1 =929; Number of units of Product #2= 464 43 7) Calculate the MOS using June sales as the expected sales (purple box). Calculate the MOS in terms of sales revenue and as a percentage. Also calculate the current operating leverage factor (round to the nearest 2 decimal places) and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume. 44 45 46 47 Chock finroes 48 Grading Rubric
H. 2 ASSUMPTIONS Product #1 Launch-it Jake's F 3 Product #1: Launch-it Unit CM CM % Pro Forma Contributio Sales price per unit Variable costs per unit: 4. $11.00 CM % For the mont Breakeven point: 6. Product cost $1.00 in units shipping cost Sales commission (10%) Total variable cost per unit $2.00 in sales revenue Sales revenue Less: variable expenses Contribution margin less: fixed expenses $1.10 $4.10 Target profit volume: 10 in units 11 Monthly volume 200 -in sales revenue Operating Income 12 13 Product #2: Treat-time WACM % 14 Sales price per unit $31.00 Product #2 Treat-time 15 Variable costs per unit: Unit CM 16 Product cost $7.00 CM% Calculation of Weig! shipping cost sales commission (10%) Total variable cost per unit 17 $8.00 Breakeven point: CM/unit Sales mix( #of units sold of each) Contibution margin 18 $3.10 -in units 19 $18.10 in sales revenue 20 21 Monthly volume 100 Target profit volume: 22 -in units WACM/unit 23 Fixed costs per month: -in sales revenue 24 trade show entry fee $800 25 Work contract $1,600 26 Total fixed costs per month 2,400 Multiproduct Breakeven point: -in units 27 Sales revenue at breakeven 28 Target profit per month 10,000 29 Multiproduct Target profit point: 30 Expected change in volume (%) 5% -in units 31 Sales revenue at target profit 32 33 Margin of Safety (in $) 34 35 Margin of Safety % 36 37 Degree of Operating Leverage 38 39 Expected % change in operating income (%)
Transcribed Image Text:H. 2 ASSUMPTIONS Product #1 Launch-it Jake's F 3 Product #1: Launch-it Unit CM CM % Pro Forma Contributio Sales price per unit Variable costs per unit: 4. $11.00 CM % For the mont Breakeven point: 6. Product cost $1.00 in units shipping cost Sales commission (10%) Total variable cost per unit $2.00 in sales revenue Sales revenue Less: variable expenses Contribution margin less: fixed expenses $1.10 $4.10 Target profit volume: 10 in units 11 Monthly volume 200 -in sales revenue Operating Income 12 13 Product #2: Treat-time WACM % 14 Sales price per unit $31.00 Product #2 Treat-time 15 Variable costs per unit: Unit CM 16 Product cost $7.00 CM% Calculation of Weig! shipping cost sales commission (10%) Total variable cost per unit 17 $8.00 Breakeven point: CM/unit Sales mix( #of units sold of each) Contibution margin 18 $3.10 -in units 19 $18.10 in sales revenue 20 21 Monthly volume 100 Target profit volume: 22 -in units WACM/unit 23 Fixed costs per month: -in sales revenue 24 trade show entry fee $800 25 Work contract $1,600 26 Total fixed costs per month 2,400 Multiproduct Breakeven point: -in units 27 Sales revenue at breakeven 28 Target profit per month 10,000 29 Multiproduct Target profit point: 30 Expected change in volume (%) 5% -in units 31 Sales revenue at target profit 32 33 Margin of Safety (in $) 34 35 Margin of Safety % 36 37 Degree of Operating Leverage 38 39 Expected % change in operating income (%)
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