Business Analytics – HW1 Fall 2024

Homework 1: Basic modeling,

analysis and spreadsheet engineering
This first assignment is designed to give you a chance to build some relatively simple
spreadsheet based models. It is based on the material in Module 1 and Module 2.
(Fundamentals of spreadsheet modeling/engineering).

Use good spreadsheet model design principles such as separation of model inputs
and outputs, appropriate cell formatting depending on the type of value in the cell,
range names, comments or text boxes, and others as described in the PMS-Ch2-
SpreadsheetModeling.pdf file available from the Readings section of this module in
Moodle, and screencasts for the Break Even model in Module 2 and in my Module 2
PPT slides. Feel free to develop your own model building style. There are many ways to
create well designed, readable, clear spreadsheet models. Be creative. Use text boxes or
cell comments to provide any answers or explanation required by the assignment.

IMPORTANT: Read the entire assignment before starting. You’ll see that I’ve included
some helpful screenshots.

Deliverables
When you are done, you will end up with TWO different Excel files and a pdf. You will
submit all of them via Moodle.

Analysis 1 – Basic Break Even Analysis

The owner of a relatively small business is trying to determine the breakeven
level of sales of the company’s single product. The fixed cost of manufacturing
this product each month is $60,000. The variable cost of producing this product
is $90 per unit. The current selling price is $140. Using historical data on selling
price and monthly demand, the owner fit the following function relating demand
and selling price:

−1.8
D=10,000,000 S

where D is the monthly demand for the product and S is the selling price. The
form of this function is called a power function. We’ll learn more about this
function soon. So, if we increase our selling price, we believe demand will
decrease. Similarly, a decrease in selling price suggests an increase in demand.
Let’s call this equation the Selling Price Function (or SPF, for short).

Assume for now that this business can meet the demand for its product each
month. Your goal is to build a spreadsheet model that will allow you to do things

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like find the break even selling price (i.e. the value of selling price that gives a
profit of zero) and do some sensitivity analysis to some of the key inputs.

1a – Inf Diagram) Develop an influence diagram for this problem to use as the
blueprint for a spreadsheet model you’ll build to help you find the breakeven
selling price. You can draw it by hand or use any electronic drawing/diagramming
tool you’d like. Figure out a way to get your influence diagram into a pdf file
and name it: BreakEven-InfDiagram-<your last name>.pdf. So, my file would
be called BreakEven-InfDiagram-isken.pdf.

1b – Base Model) Open a new Excel workbook and name it BreakEven-

BaseModel-isken.xlsx. Create a spreadsheet model to that relates profit to the
inputs and will then make it easy to use Goal Seek to find the breakeven selling
price. Name the sheet containing the model logic Model1. Since I’m going to ask
you to create some Data Tables and to do some Goal Seeking, the structure of
your model should be roughly similar to the Quality Sweaters Break Even model
we did in class. Here’s a “check value” – for Selling Price=$140 you should get
Demand≈1371 and Profit=$8539. Make sure you Save often. Don’t worry about
getting fractional demand values – it’s fine for this model. When implementing the
SPF, you must define two range names for the constants in the function.
Specifically, the cell containing the 10,000,000 should have a range name of
SPFconstant and the cell containing the -1.8 should have a range name of
SPFexponent. In addition, the cell containing the SPF itself should be ranged
named as SPFPredictedDemand. Save your file often.

1c – Defined Styles) Create a Defined Style called BaseInput and use it to

format all of the base input values in your model (just as we did with Quality
Sweaters problem in class.) You can decide on how the style looks but it must
make your model more readable.

1d – 1-way Data Table) Once your base model is done, create a one-way Data
Table to show how profit and demand are related to selling price. Profit and
demand are the outputs and selling price is the input. Let price range from $80 to
$180 in steps of $10. In addition, create a graph based on your Data Table so
that it is easy to visualize the relationship between selling price and profit. Make
sure your graph has all axes labeled, has titles, has axes properly formatted, and
looks good. Apply Conditional Formatting to your Data Table so that it is easy to
distinguish between positive and negative profit values. Include a text box that
discusses the shape of this relationship. Is it linear? Is it nonlinear? Why do you
think the graph has the shape it does?

1e – Break Even) Use Goal Seek to find the break even selling price. So that I
can tell you did the Goal Seek correctly, take a screen capture of the Goal Seek
dialog box when it is filled in and paste the screen capture into your worksheet.
You will know that you’ve got this right by confirming your result with the Data
Table output. Put the resulting break even selling price into a cell so that I can

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see you found the right price. Then you can set the original selling price back to
$140.

1f – 2-way Data Table) You are also interested in the sensitivity of profit to
different combinations of selling price and the variable production cost. So,
create a 2-way Data Table for these two input variables. Let price range from $80
to $180 in steps of $10 and let the variable production cost vary from $85 to $110
in steps of $5. Again, use Conditional Formatting on the resulting table to allow
the user to quickly see where profits are positive and negative.

1g – Formula Auditing) Use the Formula Auditing tools to display the

precedents and the dependents of the Profit cell in the main model. Then take a
screen shot and paste it into a new worksheet tab. Name this tab: AuditProfit. Hit
Save.

Since this is our first assignment, I’m going to paste in a high level screenshot of
my “answer” to the first analysis. However, do NOT feel that your modeling style
has to match mine. Of course, you must have some sort of logical style and
layout to your model.

Base model

1-way data table

with two outputs
and graph
Interpretation of
graph and shape
Goal Seek to find of profit function
break even
selling price
2-way data table

OK, now we are going to extend this model a bit. Make sure your base model file
is saved. Then do a Save As… and save a copy as a “macro enabled workbook”,
naming it BreakEven-ExtendedModel-<your last name>.xlsm (YES, you need
to change the file type to a Macro-enabled Workbook). You’ll use this new
copy in the next problem.

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Analysis 2 – Extended Break Even Analysis

2a – Capacity Issues) Modify your model to take the following complication into
account. If SPFPredictedDemand (from the SPF) is greater than 1000 but less
than or equal to 1200 we have to use overtime to be able to meet demand. In this
case, we decide to model this by increasing the unit production cost from $90 to
$110 for all units of demand above 1000 and less than or equal to 1200. So,
if demand is equal to 1050, we pay $90 unit production cost on the first 1000
units and pay $110 on the last 50 units. If demand is greater than 1200, we can
only satisfy demand for 1200 units and we simply lose all the demand above that.
Of course, we have to pay the overtime costs for all those above 1000 and less
than or equal to 1200, as just described.

IMPORTANT: In making your model modifications to address the capacity issues

you MUST NOT hard code any of the values such as the 1000, the 1200 or the
$110 into any formulas. Numeric inputs such as these are base inputs that
should be put in cells and then referenced by formulas. For example, here’s
what that part of my model looks like:

After making the necessary model modifications:

 modify the one way data table to also include the number of units sold
 use Goal Seek to find the new break even selling price.

Write a few short comments describing the differences in the results obtained
with this extended model as compared to the original base model. For example,
does the break even selling price change? Does this result make sense? Why or

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why not? Does the shape of the selling price vs profit graph change? Explain the
new shape.

2b – Automated Goal Seek) Remember to enable the Developer tab on the

ribbon so that you can use the macro recorder. Make sure the selling price is set
to $120.

Record a Macro of you using Goal Seek to find the break even selling price.
When the Goal Seek is done stop the macro recorder. Then attach that Macro to
a button from the Forms Toolbox so that you can update the break even selling
price at the click of a button. We did this in class with the Break Even model.
Note the value of the break even selling price.

2d – Goal Seek strangeness

Manually change the selling price to $250. Now, rerun Goal Seek to find the
selling price that gives a Profit of 0. What happens? What do you think is going
on? Manually set the selling price back to $120. Rerun Goal Seek to find the
selling price that gives a Profit of 0. What happens? What do you think is going
on?

2d – Automated Goal Seek and dynamic title)

In an empty cell, add the text “Target profit” and in the cell to the right of it, enter
a value of $2,000. For example, I did this in A74 and B74. For the rest of this
problem, whenever I refer to any specific cell address, it’s based on me using
A74 and B74 as just described. Now, in the cell directly below “Target profit” (A75
for me, I think you get it) build a formula that results in the text “Selling price for
profit of $2,000.” Soooo, if I change B74 to $2500, my label in A75 should
automatically update to read “Selling price for profit of $2,500.” Do NOT record a
macro to do this. You are simply building a formula that uses the value in B74 to
create a “dynamic label”. To get full credit, your formula should use the TEXT()
function and the target profit should be formatted such that a comma is used as a
thousands place separator.

Now, record a Macro of you using Goal Seek to find the selling price that results
in a profit of whatever is in B74. Name the macro PriceForTargetProfit. You will
see that you will NOT be able to reference B74 in the Goal Seek dialog box –
you’ll just have to type it (that’s a bummer of a shortcoming in Excel).
IMPORTANT: Use $2,000 as your target value in Goal Seek.
Then attach that Macro to a button from the Forms Toolbox so that you can rerun
the PriceForTargetProfit macro at the click of a button. I did this in the screencast
for the Break Even model. Here’s a screenshot of my work.

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EXTRA CREDIT: To reiterate, even if I change the value in B74 above from
$2,000 to $2,500 (which WILL update the label in A74), when I press the Update
Selling Price button, the Goal Seek will still be done for a target of $2,000. You
can see why by viewing the Macro that you recorded. So, even though we
haven’t learned VBA yet, it’s not terribly difficult to view the recorded code and
figure out a way to modify it so that your Update Selling Price button will
actually use whatever target value is in B74. If you figure this out, you’ll see one
of Excel’s many oddities. There are some things you can do by invoking Excel
functionality via VBA that you can’t do when you invoke the exact same
functionality via the Excel GUI. Go figure…

Make sure your file is saved as a Macro Enabled Workbook (i.e. has a .xlsm
extension).

Deliverables
You will end up with two Excel model files (the first is an xlsx files and the other
is an xlsm file) and your Influence Diagram pdf via Moodle. Create a folder
called ba_hw1_<your last name>. Mine would be called ba_hw1_isken. Put all
three of your assignment files into that folder.

Then compress that folder to create a zip file. Mine will end up being named
ba_hw1_isken.zip. Then upload the zip file to Moodle using the HW1
Assignment upload link that you’ll find in the Homework Assignments section of
our Moodle site. Due to some idiosyncrasies of the Moodle grading module, it’s
very important in my class that you always just submit a zipped folder containing
all of your files.

That’s it. Hope you learned a bit about basic Excel modeling building and
spreadsheet engineering. We have just scratched the surface of where we’ll go in
this class…