7.

1 Building good spreadsheet models

q = quantity (number of units) required

FC = the fixed cost of manufacturing
VC = the per-unit variable cost of manufacturing
TMC(q) = total cost to manufacture q units

TMC(q) = FC + (VC x q)

P = the per-unit purchase cost

TPC(q) = the total cost to outsource or purchase q units

TPC(q) = Pq

S(q) = the savings due to outsourcing

S(q) = TMC(q) - TPC(q)

For what values of q is S(q) > 0?

1. Seperate the parameters from the model

2. Document the model, and use proper formatting and color as needed
3. Use simple formulas

7.2 What-If Analysis

7.3 Some Useful Excel Functions for Modeling

SUM and SUMPRODUCT

IF and COUNTIF
VLOOKUP

7.4 Auditing Spreadsheet Models

Nowlin Plastics One-way Data Table

Parameters Quantity 0
Manufacturing Fixed Cost 234,000 0
Manufacturing Variable Cost per Unit 2 25000
50000
Outsourcing Cost per Unit 3.5 75000
100000
125000
Model 150000
Quantity 156,000 175000
200000
Total Cost to Produce 546,000 225000
250000
Total Cost to Outsource 546,000 275000
300000
Savings due to Outsourcing 0
Two-way Data Table

0 2.89 3.13 3.5 3.54 3.59

0
25000
50000
75000
100000
125000
150000
175000
200000
225000
250000
275000
300000
Cox Electric

Parameters Quantity 0
Fixed cost 10000 0
Material cost per unit 0.15 10000
Labor cost per unit 0.1 20000
Revenue per unit 0.65 30000
40000
Model 50000
Quantity 25000 60000
70000
Total revenue 16250 80000
90000
Profit 0 100000
Eastman Publishing Company
Quantity 0
Parameters 1000
Fixed cost 160000 1200
Variable cost per unit 6 1400
Price 51.7142857 1600
1800
Model 2000
Quantity 3500 2200
2400
Profit 0 2600
2800
3000
3200
3400
3600
3800
4000
4200
4400
4600
4800
5000
5200
5400
5600
5800
6000
Cincinnati Cincinnati

Parameters Parameters 2288.25

Rental cost 150 Rental cost 150 80
Speaker costs 2400 Speaker costs 2400 85
90
Fee 75 Fee 75 95
100
Registration 8.5 Registration 8.5 105
Breakfast 4 Breakfast 4 110
Lunch 7 Lunch 7 115
Parking 5 Parking 5 120
125
Model Member 130
Number of non 75 Number 50 135
Members 50 % not attend 25% 140
% attend 75% 145
Profit 12.5 Attendance 37.5 150
Stay 12.5 155
160
Non
Number 127
% not attend 10%
% attend 90%
Attendance 114.3
Stay 12.7

Total revenue 9048.75

FC 2550
VC 4210.5

Profit 2288.25
10% 12% 14% 16% 18% 20% 22%
24% 26% 28% 30%
Lindsay
₫790,581.86 0% 1% 2%
Annual -10000 -5000
Rate 6% -6000
Year 30 -7000
-8000
FV ₫790,581.86 -9000
-10000
-11000
-12000
-13000
-14000
-15000
-16000
-17000
-18000
-19000
-20000
3% 4% 5% 6% 7% 8% 9%
10% 11% 12%