Required: Develop an Excel spreadsheet that uses the following inputs to calculate the following outputs.
Inputs Outputs
Variable cost per unit Break-even point in units
Total fixed costs Break-even point in sales (dollars)
Sales price per unit Units sales required to achieve a target profit
Target profit Sales (dollars) required to achieve a target profit
Unit contribution margin
Assume that this report is going to be used by one of your clients. For this Excel assignment and all Excel assignments going forward unless otherwise specified, it is expected that your report:
1. Will use cell referencing to calculate outputs when appropriate.
2. Will clearly indicate which cells should be manipulated by the user (inputs).
3. Is organized in a way that the information is easy to navigate and useful for decision making.
4. Will document relevant assumptions.
5. Will be submitted as an Excel file. (.numbers files or links will be given a grade of zero)
Struggling with where to start this assignment? Follow this guide to tackle your assignment easily!
Step-by-Step Guide to Structuring Your Excel Spreadsheet
1. Understand the Required Inputs and Outputs: To begin, it’s important to familiarize yourself with the required inputs and the outputs you need to calculate. Here are the specifics you’ll need to set up in your spreadsheet:
- Inputs:
- Variable cost per unit
- Total fixed costs
- Sales price per unit
- Target profit
- Outputs:
- Break-even point in units
- Break-even point in sales (dollars)
- Units sales required to achieve a target profit
- Sales (dollars) required to achieve a target profit
- Unit contribution margin
2. Organize Your Spreadsheet Layout: A well-organized spreadsheet will make it easy to navigate and modify. Use the following structure:
- Column A: Label the rows with descriptions like “Variable cost per unit,” “Total fixed costs,” etc.
- Column B: Input values for the variables.
- Column C: Outputs calculated by formulas.
- Ensure that all input cells (in Column B) are clearly labeled so the user knows where to input values.
- Use borders and colors to differentiate input cells (e.g., highlight input cells in yellow).
3. Set Up Cell References and Calculations:
- Input Cells (Column B):
- These cells should be easily identifiable (use a light yellow fill or bold text).
- Here, the user will input the values for the variable cost per unit, total fixed costs, sales price per unit, and target profit.
- Output Calculations (Column C):
- Break-even point in units: This is calculated using the formula: Break-even in units=Total fixed costsSales price per unit−Variable cost per unit\text{Break-even in units} = \frac{\text{Total fixed costs}}{\text{Sales price per unit} – \text{Variable cost per unit}}
- Break-even point in sales (dollars): This is calculated using the formula: Break-even in sales=Break-even in units×Sales price per unit\text{Break-even in sales} = \text{Break-even in units} \times \text{Sales price per unit}
- Units sales required to achieve a target profit: This can be calculated using: Units for target profit=Total fixed costs+Target profitSales price per unit−Variable cost per unit\text{Units for target profit} = \frac{\text{Total fixed costs} + \text{Target profit}}{\text{Sales price per unit} – \text{Variable cost per unit}}
- Sales (dollars) required to achieve a target profit: This is: Sales for target profit=Units for target profit×Sales price per unit\text{Sales for target profit} = \text{Units for target profit} \times \text{Sales price per unit}
- Unit contribution margin: This is calculated using: Unit contribution margin=Sales price per unit−Variable cost per unit\text{Unit contribution margin} = \text{Sales price per unit} – \text{Variable cost per unit}
4. Document Assumptions: In the Excel spreadsheet, create a section at the bottom or in a separate sheet for documenting assumptions. Example assumptions might include:
- The sales price per unit and variable cost per unit remain constant.
- The target profit is set by the user.
- The calculations are based on linear relationships (e.g., fixed costs are constant).
5. Test the Spreadsheet: After setting up your spreadsheet:
- Input some test values for the variables.
- Check if the formulas for the outputs are calculating correctly.
- Make sure that changing the input values updates the output values dynamically (this demonstrates the use of cell referencing).
6. Review and Final Touches:
- Double-check the clarity of your input and output sections.
- Ensure that the spreadsheet is easy to navigate.
- Add any necessary instructions or comments to clarify how users should interact with the file.
- Make sure your file is saved as an Excel file (.xlsx) and not in other formats (such as .numbers).
Final Tips:
- Be mindful of user-friendliness: Make sure it’s clear where to input values and where the outputs will be displayed.
- Keep the sheet as simple and clean as possible to avoid confusion, especially for clients who may not be familiar with Excel.
- Test your calculations to ensure everything works as intended, especially when inputs change.