The first thing to know about Data Table. Data Tables let you ask What If questions quickly and easily

Transcription

1 Professor Shoemaker The first thing to know about Data Table This really beats using functions! Data Tables let you ask What If questions quickly and easily They help you cope with real-world uncertainty and imperfect information 1

2 Acme Widgets is considering introducing a new model of Widget the Q27 Customers have been asking about a Widget with cutting-edge quantum mechanical features The Q in Q27 stands for Quantum This would be the first quantum mechanical widget for Acme and management is concerned that it may not be profitable The Engineering department has worked up some numbers on the cost to make the Q27 The Marketing department has made some projections of selling price and how many Q27s might be sold The Accounting department has given you some expense numbers 2

3 It s now your job to determine if the Q27 Widget could be profitable under a variety of different outcomes What if we sold more or fewer Q27s than we assume? What if customers aren t willing to pay the price we think is right? What if our costs are higher or lower than we project? 17 WhatIfAnalysis.xlsx 3

4 The Assumptions are the numbers you ve been given Projections are your calculations of profit given the assumptions Variable Costs are the costs incurred to make one widget The parts that go into a widget in this example What are some other real-life examples of Variable Costs? 4

5 Fixed Costs are the costs the business incurs just to stay open even if there is no production and no sales What it takes to keep the lights on. What are some other real-life examples of Fixed Costs? The Revenue projection is the product of Units Sold and Selling Price per unit. If we sell 2,500 Q27s at $1,400 apiece the revenue will be $3.5M 5

6 Variable Costs is the product of Units Sold and Cost of Material per Widget It will cost us $2.75M to make 2,500 Q27 widgets Fixed Costs come straight over since they aren t dependent on the number of Q27s we make Fix costs are fixed. 6

7 Net Profit is just Revenue less the Variable and Fixed Costs It s the money we have left over after we ve paid everyone we owe. To be profitable, the Q27 has to sell enough units at a high enough price to be able to pay for The variable costs the materials for each widget The Fixed Costs keeping the lights on and then. Have some profit left over 7

8 The net profit has to be substantially more than we could make by just putting the amount of the fixed and variable costs in the bank. Why? Assumptions are only estimates of what might happen in the market place Sometimes estimates turn out way, way off Before going forward with the Q27, management wants to consider would happen if the things turn out differently than expected 8

9 Management wants you to calculate what Revenue and Net Profit would be if the number Q27s sold turned out different than marketing s projection of 2,500 units. What would revenue and net profit be at various number of Q27s sold: starting at 1,000 units and going to 4,000 units in steps of 500? The Data Table feature lets you compute a set of output numbers based on a several input values In this first example, we ll compute Revenue and Net Profit at seven different levels of Units Sold The input value is Units Sold The output values are Revenue and Net Profit 9

10 In this example we are going to vary only one value - the Units Sold so, this problem is a One Variable Data Table In a One Varible table you can vary only one value but you can compute several values from it In this case we ll compute Revenue and Net Profit while varying Units Sold The completed One-Variable table will look like this Input Value We vary Units Sold from 1,000 to 4,000 in steps of 500 Output Values The Data Table calculates Revenue and Net Profit for each value of Units Sold 10

11 You can set up a One-Variable Data Table with any number of output columns We could have added a column for Variable Costs A One-Variable table can have any number of rows But a One-Variable table can vary only one input value Units Sold in this example. The left most column has the input - value being varied Create values from 1,000 to 4,000 in steps of

12 The header row of an output column contains a reference to the cell to be computed in that column Since the second column is Revenue, the header of the column must be a reference to the Revenue cell in the Projections Cell I5 contains a reference to F5 12

13 Cell J5 contains a reference to F9 (Net Profit) The output column headers must be a reference to the value to be computed The Data Table feature will use the reference in the header of the column to compute each value in the rows of the column 13

14 Using the reference in the header of the column the Data Table will compute Revenue and Net Profit for every value of Units Sold To make the computations, we tell the Data Table how to find the Input Cell First, select the entire Data Table including the headers 14

15 Then From the Data tab select What-If Analysis then Data Tables Units Sold is a column, so in the Column input cell field make a reference to the Units Sold field in the Assumptions 15

16 Poof! The Data Table computes the values for Revenue and Net Income for each value of Units Sold The column headers must be references to formulas in the Projections for the Q27. But they show numbers and we want them to show Revenue and Net Income instead. We ll use Custom Formatting to display labels instead of numbers 16

17 Right click on the Revenue header cell and select Format Cells Select Custom for the Category and enter Revenue ; Revenue in the Type field. You have to enter it twice separated by a semicolon. Format the Net Income header in the same way. Note that the cells still contain the number, but display labels. 17

18 This table shows that Acme will lose money until it sells just under 2,000 Q27s. The quantity of Units Sold where the income becomes positive is the Break Even Point To make the data easier to grasp, use conditional formatting to highlight the profitable cells. 18

19 What is the Break Even point if the Q27 sells for $1,200 or for $1,500? What if the Cost of Materials turns out to be $1,250 per Widget? Try adjusting these values in the assumptions. You can set up a One-Variable Data Table with any number of output columns We could have added a column for Variable Costs A One-Variable table can have any number of rows But a One-Variable table can vary only one input value Units Sold in this example. 19

20 With a Two-Variable data table you can vary two values But you can compute only one value from each combination of the two. In this example we are going to vary two values: Selling Price and Units Sold We ll compute one value: Net Profit for each combination of the two. 20

21 If the Selling Price is $1,500 and we sell 3,000 widgets, our Net Profit will be $605,000. The intersection is what s computed and why we can have only one value produced from two variables The upper left cell of the Two Variable table must be a reference to the value to be computed in the table. In this case, it s Net Profit 21

22 Use custom format to display Units Sold in H15. Enter Selling Price as the title over the columns of the table. Add values and formulas to setup the two numbers being varied In row 16, vary Selling Price from $1,300 to $1,600 in steps of $100 In column H vary Units Sold from 500 to 4,000 in steps of

23 To make the computations, we tell the Data Table how to find the Input Cell First, select the entire Data Table including the row and column with the two variables Then From the Data tab select What-If Analysis then Data Table 23

24 Selling Price is the top row of the Data Table, so in the Row input cell field make a reference to the Selling Price field in the Assumptions Units Sold is the left hand column of the Data Table, so in the Column input cell field make a reference to the Units Sold field in the Assumptions 24

25 Poof! You get a data table. Use conditional formats to highlight the profitable and unprofitable cells of the table. The Data Table shows very clearly the effect on profitability of various combinations of Units Sold and Selling Price 25

26 Behind the scenes, it plugs every combination of Price and Units Sold into the Assumptions and inserts the Net Profit in the cell at the intersection. The best way to test is to mimic what the Data Table does Enter several combinations of price and units sold in the Assumptions and check that the Net Profit matches the cell at the intersection of that price and units in the data table. 26

27 What if the Cost of Materials turns out to be $1,250 per Widget? What if you increased the Sales and Marketing budget by $100,000? With a Two-Variable data table you can vary two values But you can compute only one value from the two. 27