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their initial encounter. It is early Sunday afternoon and they have just returned from
running a 10 k race. The following discussion takes place after the run.
Julia: Ram, you didn’t do badly on the run.
Ram: Thanks, but you’re obviously being kind. I feel exhausted .
Julia: Speaking of exhaustion, remember that project I told you my boss dumped
on my desk? Well, I have a spreadsheet that I think does a pretty good job of
solving the problem. Can you take a look at it?
Ram: Sure. By the way, do you know that Prof. Gomez from our MBA has written
a book on spreadsheet analysis? The old guy did a pretty good job of it too. I
brought along a copy for you.
Julia: Thanks. I remember him as being pretty good at simplifying some tough
concepts.
Ram: His first chapter discusses a simple way to think about spreadsheet structure
and workbook design—workbook feng shui as he puts it. It’s actually 5 best
practices to consider in workbook design.
Julia: Maybe we can apply it to my spreadsheet?
Ram: Let’s do it.
1.6.1 Julia’s Business Problem—A Very Uncertain Outcome
Julia works for a consultancy, Market Focus International (MFI), which advises
firms on marketing to American, ethic markets—Hispanic Americans, Armenian
Americans, Chinese Americans, etc. One of her customers, Mid-Atlantic Foods
Inc., a prominent food distributor in the Mid-Atlantic of the US, is considering
the addition of a new product to their ethnic foods line—flour tortillas . 2 The firm
is interested in a forecast of the financial effect of adding tortillas to their prod-
uct lines. This is considered a controversial product line extension by some of the
Mid-Atlantic’s management, so much so, that one of the executives has dubbed the
project A Very Uncertain Outcome .
Julia has decided to perform a pro forma (forecasted or projected) profit or loss
analysis, with a relatively simple structure. (The profit or loss statement is one of the
most important financial statements in business.) After interviews with the relevant
individuals at the client firm, Julia assembles the important variables and relation-
ships that she will incorporate into her spreadsheet analysis. These relationships are
shown in Exhibit 1.1. The information collected reveals the considerable uncertainty
involved in forecasting the success of the flour tortilla introduction. For example,
the Sales Revenue ( Sales Volume
Average Unit Selling Price ) forecast is based
on three possible values of Sales Volume and three possible values of Average Unit
Selling Price . This leads to nine (3
3) possible combinations of Sales Revenue .
One combination of values leading to Sales Revenue is volume of 3.5 million units in
×
2 A tortilla is a form of flat, unleavened bread popular in Mexico, parts of Latin America, and
the U.S.
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