Quantitative Decision Making - Lab1

ETECH 889-XX Quantitative Decision Making in Industry

Using Excel’s Goal Seek Tool

Report 1

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(1) Problem Definition:

Lays Chips is in the business of making chips. The one-time setup cost of the required machinery is $3,000. The variable labor and material cost of producing a chip is $2. The selling price of each chip is $5. It is assumed that all the chips that produced will be solved. We have to determine the breakeven point, the number of chips to be produced that will generate the revenue equaling the total cost. Also, we have to determine the number of chips to be produced for a desired profit.

(2) Mathematical Model:

If the cost(cp) is a function of chips produced, then the cost-volume model for producing cp chips can be expressed by the equation:

cost(cp) = 3000 + 2*cp

If revenue(cp) represents a function of chips sold then the total revenue model can be represented by the equation:

revenue(cp) = 5*cp

Model for profit, if all the chips produced are sold, can be given by (cp stands for chips produced) the equation:

profit(cp) = revenue(cp) – cost(cp) = (5*cp) – (3000 + 2*cp) = –3000 + 3*cp

(3) Microsoft Excel Solution:

The Excel solution developed is given by the following screen captures:

(4) Excel’s Goal Seek:

Results from Excel’s Goal Seek Tool show that the breakeven point is achieved when 1000 chips are produced, as evident from the following screen captures:

(5) Excel’s Goal Seek:

Results from Excel’s Goal Seek Tool show that the profit of $1000 is achieved when 1333 chips are produced, as evident from the following screen captures:

Results from Excel’s Goal Seek Tool show that the profit of $5000 is achieved when 2667 chips are produced, as evident from the following screen captures:

Conclusion and Recommendations:

The breakeven point is met when 1000 chips are produced and sold.

A profit of $1000 is achieved when 1333 chips are produced and sold.

A profit of $5000 is achieved when 2667 chips are produced and sold.

(6) Please upload your spreadsheet file too.