2.  Review the principles of cost-volume-profit relationships  Discuss Excel what-if analysis tools 2

3.  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 3

4.  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 4

5.  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 5

6.  Break-even point: revenue equals expenses  A CVP chart shows the relationship between expenses and revenue 6

7.  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

8.  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 8

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10.  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

11.  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 11

12.  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 12

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14.  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

15.  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

16.  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 16

17.  Edit Scenario dialog box 17

18.  Scenario Values dialog box 18

19.  View the effect of each scenario by selecting it in the Scenario Manager dialog box 19

20.  Editing a Scenario  Edit the assumptions to view other possibilities  Worksheet calculations are automatically updated to reflect the new scenario 20

21.  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 21

22.  Specify three Solver parameters  Objective cell  Variable (or changing) cells  Constraints 22

23.  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 23

24.  Add Constraint dialog box 24

25.  Completed Solver Parameters dialog box 25

26. 26 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