12-12-2018, 02:06 PM

extract(s) from the Working with your Business Consultant Professional Calculator series.

Revising Forecasts to Reflect Current Market Conditions …

Most sales forecasts are based on certain assumptions about, and

incomplete knowledge of, your market and competition. After the

forecasts are made, internal and external changes make your original

assumptions and your forecast incomplete. Examples of these changes

in the market that were not reflected in the original forecast are a

price drop (yours or your competitiors), advertising or promotional

campaign, rebate offer, introduction of a new product by a competitor,

or a change in distribution of your product. The formulas below helps

you revise your forecast, based on the perceived impact of the market

changes.

formula

NEWF=BASE+((A%+B%+C%)÷100)×BASE

where

BASE = original forecast

%A = expected change in sales for change in market A

%B = expected change in sales for change in market B

%C = expected change in sales for change in market C

Setting a Sales Price …

One method fro setting a unit sales price is to deternine the unit cost

of a product then multiply by a desired rate of return. The other values

you must know are your total operating cost and the number of units

you expect to sell.

formula

PRICE=(OPCOS÷UNITS+UNCOS)×(1+%RTN÷100)

where

PRICE = price per unit

OPCOS = total operating costs

UNITS = number of units sold

UNCOS = cost per unit

&RTN = desired percent rate of return

Break-Even Analysis …

Break-even analysis is a technique for analyzing the relationships

among fixed costs, variable costs and income. Until the break-even

point is reached (total costs equal total income), the producer operates

at a loss. After the break-even point, each unit produced and sold

makes a profit. The variables in the formula below are fixed costs,

variable costs per unit, sales price per unit of number of units sold and

gross profit.

formula

PROFI=#SOL×(USPR-UCST)-FXCO

where

PROFI = gross profit

#SOL = number of units sold

USPR = selling price per unit

UCST = costs per unit

FXCO = fixed costs of doing business

Leasing Calculations

Situations may exist where one or more payments are made in ad-

vance (leasing is a good example). These agreements call for the extra

payments to be made when the transaction is closed. A residual value

(salvage value) can exist at the end of the normal term.

Advance Payments …

The following formula calculates the monthly payment amount (PMT)

and the annual yield (I%YR) when one or more payments are made in

advance. The formula can be modified to accommodate other than

monthly payments by changing the constant 12 to the number of

payments per year. In that case, PMT, N and #ADV would apply to

the periodic payment. Remember to use the cash flow sign convention

(money paid out is negative, money received is positive).

formula

ADVPMT:PMT=(–PV–FV×(SPPV(I%YR÷12:N)))÷

(USPV(I%YR÷12:N–#ADV)+#ADV)

where

PMT = monthly payment amount

PV = loan amount

FV = balloon payment amount

I%YR = annual interest rate in percent

N = total number of monthly payments

#ADV = number of monthly payments made in advance

SlideRule

Revising Forecasts to Reflect Current Market Conditions …

Most sales forecasts are based on certain assumptions about, and

incomplete knowledge of, your market and competition. After the

forecasts are made, internal and external changes make your original

assumptions and your forecast incomplete. Examples of these changes

in the market that were not reflected in the original forecast are a

price drop (yours or your competitiors), advertising or promotional

campaign, rebate offer, introduction of a new product by a competitor,

or a change in distribution of your product. The formulas below helps

you revise your forecast, based on the perceived impact of the market

changes.

formula

NEWF=BASE+((A%+B%+C%)÷100)×BASE

where

BASE = original forecast

%A = expected change in sales for change in market A

%B = expected change in sales for change in market B

%C = expected change in sales for change in market C

Setting a Sales Price …

One method fro setting a unit sales price is to deternine the unit cost

of a product then multiply by a desired rate of return. The other values

you must know are your total operating cost and the number of units

you expect to sell.

formula

PRICE=(OPCOS÷UNITS+UNCOS)×(1+%RTN÷100)

where

PRICE = price per unit

OPCOS = total operating costs

UNITS = number of units sold

UNCOS = cost per unit

&RTN = desired percent rate of return

Break-Even Analysis …

Break-even analysis is a technique for analyzing the relationships

among fixed costs, variable costs and income. Until the break-even

point is reached (total costs equal total income), the producer operates

at a loss. After the break-even point, each unit produced and sold

makes a profit. The variables in the formula below are fixed costs,

variable costs per unit, sales price per unit of number of units sold and

gross profit.

formula

PROFI=#SOL×(USPR-UCST)-FXCO

where

PROFI = gross profit

#SOL = number of units sold

USPR = selling price per unit

UCST = costs per unit

FXCO = fixed costs of doing business

Leasing Calculations

Situations may exist where one or more payments are made in ad-

vance (leasing is a good example). These agreements call for the extra

payments to be made when the transaction is closed. A residual value

(salvage value) can exist at the end of the normal term.

Advance Payments …

The following formula calculates the monthly payment amount (PMT)

and the annual yield (I%YR) when one or more payments are made in

advance. The formula can be modified to accommodate other than

monthly payments by changing the constant 12 to the number of

payments per year. In that case, PMT, N and #ADV would apply to

the periodic payment. Remember to use the cash flow sign convention

(money paid out is negative, money received is positive).

formula

ADVPMT:PMT=(–PV–FV×(SPPV(I%YR÷12:N)))÷

(USPV(I%YR÷12:N–#ADV)+#ADV)

where

PMT = monthly payment amount

PV = loan amount

FV = balloon payment amount

I%YR = annual interest rate in percent

N = total number of monthly payments

#ADV = number of monthly payments made in advance

SlideRule