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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
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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)
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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
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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
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Allows you to specify a value for a calculated item
Excel returns input value needed to reach the goal
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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
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Display results from several what-if analyses
One-variable data table
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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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Set up the worksheet for a data table
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Select the columnar grid for the data table
Formula
to copy
Input
values
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Select the input variable to be modified
(interest rate)
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Select Column input cell because the data are
columnar
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Gives a better picture of relationship between
sales volume, revenue, and total expenses
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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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Set up the worksheet for a data table
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Select the two-dimensional grid for the data
table
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Select the two input variables to be modified
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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
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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
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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
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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
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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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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
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Displays results from each scenario as a pivot
field in a PivotTable
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Results for the table can be displayed in a
PivotChart
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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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Solver can create three different reports
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Answer report (the most useful)
Sensitivity report
Limits report
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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
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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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Save parameters in cells in the worksheet
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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
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Saved Solver model
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