 Explore the principles of cost-volume-profit relationships  Perform a basic what-if analysis  Use Goal Seek to calculate a solution  Create a one-variable data table  Create a two-variable data table  Create and apply different Excel scenarios  Generate a scenario summary report  Generate a scenario PivotTable report  Explore the principles of price elasticity  Run Solver to calculate optimal solutions  Create and apply constraints to a Solver model  Save and load a Solver model 2

3

4

 Cost-volume-profit ( CVP ) analysis  Studies the relationship between expenses, sales volume, and profitability  Helps predict the effect of cutting overhead or raising prices on a company’s net income 5

 Used to determine at what point a product or activity becomes profitable  In break even analysis, there are fixed costs that do not change  There are variable costs based on the number of units sold  These are the costs of raw materials and direct labor  Break-Even Analysis determines how to just pay for costs (net income of zero)  The break-even point is that point where the total net profit is 0 6

 Types of expenses  Variable expenses change in proportion to the amount of business a company does  Fixed expense must be paid regardless of sales volume  Total Expenses = Fixed expenses + variable expenses 7

 Break-even point: revenue equals expenses  A CVP chart shows the relationship between expenses and revenue 8

 Goal Seek  Automates trial-and-error process  One-variable data tables  Works by changing the value of one input variable  Two-variable data tables  Works by changing the value two input variables  The Scenario manager  Input variables are changed using two or more scenarios

 What-if analysis lets you explore the impact of changing different values in a worksheet  Goal Seek automates trial-and-error process  Allows you to specify a value for a calculated item  Excel returns input value needed to reach the goal  Goal Seek dialog box – determining break-even point 10

11

 Use to calculate different expected outcomes by changing the value of a single variable  Note that we could do this by hand using mixed formula references  When creating data tables, the structure of the data must be in a specific form

 Display results from several what-if analyses  One-variable data table  Specify one input cell and any number of result cells  Useful in business to explore how changing a single input cell can impact several result cells 13

 Set up the worksheet for a data table

 Select the columnar grid for the data table Formula to copy Input values

 Select the input variable to be modified (interest rate)  Select Column input cell because the data are columnar

 Gives a better picture of relationship between sales volume, revenue, and total expenses 18

 Conceptually, they work like one-variable data tables  Two inputs are changed instead of one input  The resulting output is a grid  Analyzes a variety of combinations simultaneously  Uses two input cells, but displays only a single result value  Must identify the row input cell and the column input cell 19

 Set up the worksheet for a data table

 Select the two-dimensional grid for the data table

 Select the two input variables to be modified

24

25

26

27

 Use the Scenario Manager to vary one or more input value  Each unique combination of input values is called a scenario  Input cells are called changing cells  There can be many scenarios  Scenarios usually vary from best possible case to worst possible case  Scenario input must be well-structured

 Using the Scenario Manager can be confusing as you don’t see the input values to the scenarios  Create scenarios to perform a what-if analysis with more than two input cells  Define names for all input and result cells that you intend to use in the analysis  Use named ranges for the input values to simplify the creation of scenarios  Defined names automatically appear in reports generated by the Scenario Manager  Using defined names makes it easier to work with scenarios and understand the scenario reports

 Use the Scenario Manager to define scenarios  Each scenario includes a scenario name, input cells, and values for each input cell  Number of scenarios is limited only by computer’s memory  Input cells are referred to as changing cells  Contain values that are changed under the scenario  Can be located anywhere in the worksheet 30

 Edit Scenario dialog box 31

 Scenario Values dialog box 32

 View the effect of each scenario by selecting it in the Scenario Manager dialog box 33

 Editing a Scenario  Edit the assumptions to view other possibilities  Worksheet calculations are automatically updated to reflect the new scenario 34

 Displays the values of the input cells and result cells under each scenario  Tabular layout makes it simpler to compare results of each scenario  Automatic formatting makes it useful for reports and meetings 35

36

 Displays results from each scenario as a pivot field in a PivotTable 37

 Results for the table can be displayed in a PivotChart 38

39

40

 Solver searches for the optimal solution to a problem involving several variables  Arrives at optimal solutions through an iterative procedure  Because it is an add- in, Solver might need to be activated 41

 Specify three Solver parameters  Objective cell  Variable (or changing) cells  Constraints 42

 Constraints confine the solution within a reasonable set of defined limits  Constraints supported by Solver  =, and =  integer or int  binary or bin  dif or AllDifferent 43

 Add Constraint dialog box 44

 Completed Solver Parameters dialog box 45

 Solver can create three different reports  Answer report (the most useful)  Sensitivity report  Limits report 46

 Titles  Information about the objective cell: location, cell label, and cell’s original value and final values  Information about the changing cells (variable cells): location, column and row label, original value, and final value of each cell  Information about the constraints: not binding and binding, and slack 47

48

49 Data tables To perform several what-if analyses involving one or two input cells and to display analysis in a tabular format Easily displayed as charts Create a scenario For what-if analyses involving more than two input cells Scenario summary tables and scenario PivotTables can be used to obtain a quick snapshot of several possible outcomes Scenarios can be merged and shared among several workbooks Solver To maximize or minimize a value (provide a single solution or “best outcome”) To set a calculated cell to a specific value Goal Seek If you don’t need to specify any constraints on your solution

 Save parameters in cells in the worksheet  Reload the parameters from the worksheet cells without having to reformulate the problem  Create dozens of models that you can load and apply to your analysis as new data is entered  Load/Save Model dialog box 50

 Saved Solver model 51