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MBA 504

MAC 502

Spreadsheet Modeling
Assignment #8

Prof. Liz Durango-Cohen

The data needed for this problem set is contained in worksheet MBA_504_MAC_502_Problem_Set_#8_F14.xls

Problem 1: Writers Edge is a seller of fine fountain pens. The company has found that, in spite of the growth in
online buying, its catalog business is still quite strong. With the holiday season coming Writers Edge is planning
to run a new direct mail campaign. Relevant information includes:

The cost of printing the holiday season catalog is $30,000 in fixed costs plus $0.23 per catalog.
The cost of mailing each catalog (postage + cost of purchasing names and addresses of potential
customers from a list vendor) is $0.39.
Each catalog will include a direct reply envelope that can be used to send in the order form. The cost of
including an envelope inside each catalog is $.02. For each envelope that is used to place an order,
Writers Edge incurs a prepaid postage charge of $0.26.
The average order amount is $239.
Historically, 6.5% of those receiving a catalog place an order.
The variable cost per order (cost of pen, return packaging and shipping, labor, etc.) averages 68% of the
order amount.

As of this moment, Writers Edge plans to mail 50,000 catalogs, but that number could change once they have a
better idea of the overall financial potential of the campaign.
Questions Writers Edge would like to answer:
What is the estimated profitability of the campaign as currently planned?
How does profit vary as response rate changes?
At what response rate does the campaign break even?
How does profit vary as the number mailed changes?

a. Set up a spreadsheet that adequately captures the key drives/inputs to analyze Writers Edge mailing
campaign.
b. Using the base-case model set up in part a, perform a what-if analysis based on the questions presented
above.
*This case is based on materials from Spreadsheet Modeling and Applications: Essentials of Practical
Management Science by Albright and Winston.

Problem 2: You are the team leader of a unit of a U.S. nonprofit organization based in Banjul, Gambia (capital
city). The nonprofit's mission is to ensure that rural populations worldwide have access to health and sanitationrelated supplies. Due to the sudden departure of one of your team leaders, you are taking over responsibility for
ordering certain medical supplies for three villages. Each village consists of four groups:

Senior citizens (those over 65)


Children (population 12 and under)
Teens (those aged 13-19)
The population aged 20-65

The medical supplies required by each village include bandages (types A, B, and C), medical tape, and hearing
aids. Children need type A bandages; teens need type B bandages; and adults (i.e., everyone else), need type C
bandages. All members of the population use the same kind of medical tape. Only senior citizens require hearing
aids. The former team member explained to you that a good rule of thumb is to ensure that at all times a village
should keep in stock two bandages per person and hearing aids for 5 percent of the senior citizen population.
Cost and packaging information for the products is as follows:

Type A bandages come in packages of 30. Each package costs $3.00.


Type B bandages come in packages of 30. Each package costs $5.00.
Type C bandages come in packages of 30. Each package costs $6.00.
Medical tape comes in rolls of 2 feet each. You usually use one roll per package of bandages. One roll
costs $2.50.
Hearing aids are sold in single units (1 per package) and are $5.00 each.

Your unit's budget does not enable you to purchase more supplies than you need in a given quarter. At the end
of every quarter, one of your team members provides you with the population count by age group for the village
and the stocks remaining in each village.
The former team member completed this cumbersome task by hand every quarter. However, owing to your
other responsibilities, you will have no more than a few minutes to spend on this task on a quarterly basis-doing
it by hand is out of question. In addition, you may be transferred to another post in three to six months, so you
may have to pass on the responsibility to a successor before too long.
It is 6:00 a.m. Monday morning. You have three hours left at the city headquarters until you leave to begin two
weeks of fieldwork in the villages without computer access. The initial order must be placed by next Friday, so
you will have to take care of procuring a check from the finance officer and placing the order before you leave.
Other team members are beginning to arrive, but the office is still quiet. Everything else on your plate can wait
until you return. Yet, something else could pop up at any moment, so you have to work quickly. You don't have
the latest population or stock figures yet, but the team member who has them will arrive at 8:30 a.m.
Design a spreadsheet that will enable you to request the required funds from your teams finance officer, order
supplies from the home office, and ensure dissemination of appropriate quantities to each village. Your final
order to the home office should specify the number of packages required of each item.
a. The population figures show that there are 3,000 children, 2,500 teenagers, 500 seniors, and 9000 other
adults in the population. In there are no stocks on hand, what amount would be required for ordering
supplies?

b. Using the parameters in (a), construct a graph showing how the amount required for the order would
vary if the unit cost of a package of bandages (for all three types) rose by $0.25, $0.50, and so on, up to
$3.00 per package.
c. Following up on (a), a check on stock shows an inventory of 124 packages of A-bandages, 16 packages of
B-bandages, 82 packages of C-bandages, 72 rolls of tape, and 4 hearing aids. What amounts would be
required for ordering supplies?

Problem 3: Blue-Star-Blue-Moon of Illinois is an insurance company that offers four alternative health plans
with various degrees of coverage, from a low-cost plan with a high deductible to a high-cost plan with a low
deductible. The details of coverage are given in the following table.
Plan Options and Costs
Deductible
1-Person 2-Person/Family
Option 1
$1,500
$2,500
Option 2
500
1000
Option 3
250
500
Option 4
100
200

Co-Payment
None
20%
20%
10%

1-Person
$1,825
$2,016
$2,245
$2,577

Annual Premium
2-Person
Family
$3,651
$4,929
$4,032
$5,444
$4,491
$6,063
$5,154
$6,959

The deductible amount is paid by the employee. The first column applies to an individual; the second applies to
two-person or family coverage. In the case of Option 1, for example, this means that the insurance coverage
takes effect once the individual has paid for $1,500 worth of expenses. In the case of two-person or family
coverage, the insurance takes effect once the household has incurred $2,500 worth of expenses.
The co-payment is the percentage of expenses that must be paid by the employee when the insurance coverage
takes effect. In the case of Option 2, for example, this means that the insurance covers/pays 80 percent of all
expenses after the deductible has been reached.
The annual premium is the amount the employee pays for the insurance coverage.
As a new member of the Human Resources department, you have been asked to develop an application (i.e.,
spreadsheet) that can be used by any of your firms employees, whether single or married, small family or large,
low medical expenses or high, to compare these plan alternatives and allow the employee to see which plan is
most advantageous financially (given the employees expected level of medical expenses). The guidelines for
constructing your comparison application are as follows:

Like the mortgage calculator you created a few weeks ago, the application will have an input area
where you can indicate the number of people in the employees family as well as the employees
expected medical expenses for the coming year.
You should include a calculations area where options are evaluated, based on the user inputs.

NOTE: The application should include a results area where you indicate the total cost of each plan and the
cost breakout for each element of the plans (deductible, co-insurance payments, annual premium).

In constructing your base case model, assume a three-person household with estimated expenses of $3,000 per
year. You should get that Option 2, with a total annual cost of $6,844 is the best plan. Once your comparison
model is complete, answer the following questions:
Once you have constructed your spreadsheet, calculate the costs for the following:
a. A single employee with estimated annual expenses of $400. Which plan is the cheapest? What is
the total annual cost associated with this plan? Use paste-special values, and copy the results
somewhere in your worksheet.
b. For the analysis in a., construct a table that shows the best plan and the associated cost for annual
expenses ranging from $100 to $1,200 in steps of $100. Use paste-special values, and copy the
results somewhere in your worksheet.
c. Consider the case of a married employee with estimated annual expenses of $1000 and an equal
amount for the spouse. Which plan is cheapest? What is the total annual cost associated with this
plan?

Problem 4: In this problem, you will be asked to complete a Bucket List Dashboard, as shown below.

Below is a list of items that must be completed to create the dashboard shown above.

1. Format the Big Goals and Continents tables (Format headers, font, color).
2. Use Data Validation to create a pull-down list for each item. The pull down list will have the following
entries: Blank, Done, In-Progress and Not Started as its possible values. See figure below.

3. Use Conditional Formatting so that when an entry is set to Done, the text for the entry will be
formatted with Strikethrough. For examples, see entries in cell A4 and A15 above.
4. Add a CheckBox in the cell adjacent to cell D10. To do so, go to the Data tab, Controls group, and click
on Check Box under Form Controls (first row, third column)---we are not using ActiveX controls in this
exercise--- then click on E10. Screen shots of these steps are shown below.

5. Right Click on the Check Box, and select Edit Text. Delete Check Box 1. Move the Check Box so that is
centered in cell E10. Note: To select the box, right-click on it. Left-clicking on it, will check and uncheck
it.
6. Repeat Steps 4 and 5 to add Check Boxes to E11 to E 16.
7. Link each Check Box to the cell it is positioned in. To do this, right-click on the Check Box, and select
Format Control. See figure below.

Under Cell link click on the cell the Check Box is in. In this example, the cell is E10. Click OK.

To test that what you have just done worked, left-click on the Check Box. The corresponding cell (E10) should
show TRUE as its value. When the Check Box is unchecked, the cell will show FALSE.

8.

For the Big Goals table, create a tally to keep track of how many activities are Done, and another
tally for the number of activities that are In-Progress. HINT: Use COUNTIF. Using these tallies,
calculate the percentage of activities completed (Done), and what percentage of activities are InProgress.

9. Created a Stacked Bar Chart to show a Progress Report. You will need to define two series for your
chart. Format the chart axis to be a percentage, as shown below. Use the same color scheme. Note that
the label Progress Report is not part of the chart. Insert it using a Text Box.

10. Create a tally of how many continents have been visited.


Hint: Use COUNTIF (E10:E16, TRUE). Using this result, to create a Doughnut Chart, as shown below.
The label Continents was added using a Text Box.

11. To hide the value of any cell (i.e., intermediate calculations), you can use Custom format (;;;) to hide the
text. In particular, note that in the figure below, cell F11 contains the text Not Visited (look at the
formula bar). To make it not visible, one can right-click on F11, select Format Cells, click on Custom
Category, and enter ;;; under Type, click OK.

Problem 5: Prepare the Powell Bookstore case handed out in class. You do not need to submit it.

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