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Case: New Product Development

• GO-HD is interested in the viability of producing a new
product, the HD2. They want to find the breakeven
quantity of the new product.
- Fixed R&D cost: $300,000
- Production cost: $200/unit
- Selling Price: $500/unit
• Questions:
- What is the breakeven quantity of the product?
- How would changes in the R&D cost and the selling price
affect the decision?

Learning Objectives
• Business Concepts: Breakeven Concept
• Excel Features:
- Enumeration Method,
- Data Tables,
- Goal Seek,
- Absolute/Relative References,
- Formlist Add-in
• Modeling Concepts: Sensitivity Analysis

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Solution Outline
• Finding the breakeven quantity of the product
- Solution by Inspection
- Solution by Goal Seek
- Solution by Algebra

First, we’ll need to list a series of possible order quantities into our
spreadsheet. We can use the Series tool in Excel to do this quickly.

Step 1: Enter the first quantity value to

enumerate. Choose Home  Fill  Series…

Step 2: Select Series in

Columns and fill in Step
value = 100 and Stop
Results: value = 1500

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Then we can type in the formulas of revenue, cost and profit for the
first quantity value.

Formulas:

Note: the use of absolute reference (rather

Note: the F4 key can be used to create than hard-coding $500 into the formulas) is
absolute references. Try pressing it always preferable. Among other things, it
multiple times to see the difference. simplifies making changes to the problem
parameters later, if necessary.

We do not need to type in formulas for each quantity manually. We

can copy the formulas by…

Step 1: Select the

cells with formulas.

Step 2: Move the

pointer to the right-
bottom corner of
the selected area

Step 3: Drag and

fill in the whole
Note: When copying formulas downwards, table
you can also double-click the box in the
bottom-right corner to fill in the table
automatically.

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The breakeven quantity is the quantity that yields zero profit…

In addition, we can also use a scatter chart to visualize the analysis.

Step 1: Choose the

whole table.

Step 2: Select
Insert  Scatter 
Straight lined
scatter chart.

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Solution Outline
• Finding the breakeven quantity of the product
- Solution by Inspection
- Solution by Goal Seek
- Solution by Algebra

New Tool: Goal Seek Data

Data Tools

What-If Analysis

Goal Seek…

• Many business problems require you to find

the appropriate level of some activity.
• If you know the result that you want from a
formula, but are not sure what input value the
formula needs to get that result, use the Goal
Seek.

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We only needs the same formula for one line. Goal Seek will find
the breakeven quantity automatically.

Step1: Copy the first line

of the model.
Step 2: Choose Data 
What-if analysis  Goal
Seek…

Step 3: Fill in the table.

Results:

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Solution Outline
• Finding the breakeven quantity of the product
- Solution by Inspection
- Solution by Goal Seek
- Solution by Algebra

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Breakeven Analysis by Algebra

• We can calculate the breakeven quantity by
algebra for this simple model.
• We know the equation to calculate Profit for a
given quantity.
Profit = revenue – cost
= price * quantity – R&D cost – unit cost * quantity
• By setting profit to zero, we yield
Quantity = R&D cost/(price – unit cost)
= 300,000/(500 – 200) = 1000

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Solution Outline
• Finding the breakeven quantity of the product
- Solution by Inspection
- Solution by Goal Seek
- Solution by Algebra
• Showing the effect of changes in the R&D Cost
and the selling price in breakeven quantity
- Solution by Data Table

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New Tool: Data Table Data

Data Tools

What-If Analysis

Data Table…

• A data table shows how changing one/two

variables in the formulas will affect the results.
• Data tables help calculate multiple results in
one operation. It provides a way to view and
compare the results of all the different
variations together.

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Sensitivity Analysis by Data Table

• How would changes in the R&D cost and the
selling price affect the decision?
• Data table helps us to find out the answer.
• There are two different data tables:
- One-way data tables show how performance
measures change as one input variable changes.
- Two-way data tables show how performance
measure changes as two input variables change.

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Two-way Data Table

• A two-way data table calculates how one
performance measure changes as two input variables
change.
Top row has the values for input
parameter 2 (R&D cost).

Upper left corner contains BE 200,000 300,000 400,000

the formula for the break- point
even point. 400
500
Left column has the values
600
for input parameter 1 (price).
700

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We want to build a two way data table to see how the breakeven
quantity changes as the R&D cost and the selling price change.

Step 1: Enter formula at cell B9 = $B$3/($B$5

- $B$4) and select the whole table.

Step 3: Choose Data -> What-if analysis ->

Data Table…

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Step 4: Fill in the table.

Results: Note: Values in C37-E38 are

breakeven points for the
corresponding selling price
and R&D cost pair.

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One-way Data Table

• A one-way data table calculates how the one or
multiple performance measures change as one input
variable changes.
Top row contains the formulas for
revenue, cost and profits

revenue cost profits

Left column contains values
400
of the input parameter
(selling price ) for which you 500
want to conduct sensitivity 600
analysis.
700

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Either the row or column input cell is empty in a one-way data table.

Step 1: B43 = $B$3/($B$5 - $B$4)

Step 2: Select the Table

Note: Each row in the one-way

Step 3: Fill in the row data table shows the value of one
input cell. Leave the performance measure. A one-way
column cell empty. data table can show multiple
measures at the same time.

Results:

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The input can also be column cells…

Step 1: C48 = $B$3/($B$5 - $B$4)

Step 2: Select the Table

Step 3: Fill in
the column
input cell.

Results:

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Solution Outline
• Finding the breakeven quantity of the product
- Solution by Inspection
- Solution by Goal Seek
- Solution by Algebra
• Showing the effect of changes in the R&D Cost
and the selling price in breakeven quantity
- Solution by Data Table
• Displaying formulas in Excel
- Add-in: Formlist

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Add-in: Formlist Add-ins

Formula
List

• In order to make the readers understand the model better, we

usually need to display the key formulas in the model.
• Thanks to Professor Roger Meyerson, we have an add-in
Formlist to do this automatically. It is is a simple auditing tool
that adds procedures for displaying the formulas of any
selected range.

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The Formlist helps display the formulas in the model automatically

and make the model more understandable.

Step 1: Choose Add-Ins 

Formula List

Step 2: Select the cells

whose formulas are to be
listed.

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Step 3: Choose the range

to display the formulas.

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Step 4: Since we do not

want to list the name
definition, choose “No”.

Results:

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