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Review the principles of cost-volume-profit
relationships
Discuss Excel what-if analysis tools
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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
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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

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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
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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
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Break-even point: revenue equals expenses
A CVP chart shows the relationship between
expenses and revenue
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Goal Seek
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One-variable data tables

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Works by changing the value of one input variable
Two-variable data tables
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Automates trial-and-error process
Works by changing the value two input variables
The Scenario manager

Input variables are changed using two or more
scenarios

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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
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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
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Conceptually, they work like one-variable data
tables

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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
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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

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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

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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
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Edit Scenario dialog box
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Scenario Values dialog box
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View the effect of each scenario by selecting it
in the Scenario Manager dialog box
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Editing a Scenario
Edit the assumptions to view other
possibilities
 Worksheet calculations are
automatically updated to reflect the
new scenario
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Solver searches for the
optimal solution to a
problem involving
several variables
Arrives at optimal
solutions through an
iterative procedure
Because it is an addin, Solver might need
to be activated
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Specify three Solver parameters
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Objective cell
Variable (or changing) cells
Constraints
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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
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Add Constraint dialog box
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Completed Solver Parameters dialog box
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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
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