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The Woodworks Company produces a variety of custom-designed wood furniture, made from either cherry or oak. The company knows that wood prices and labor costs are likely to increase in the future. The table below shows the number of board-feet and labor hours required for a bookshelf, the current costs per board-foot and labor hour, and the anticipated annual increases in these costs.Build a spreadsheet model that enables the company to experiment with the growth rates in wood and labor costs so that a manager can see, both numerically and graphically, how the costs of bookshelves vary in the next few years.ResourceCherryOakLaborRequired per Bookshelf303016Current Unit Cost$5.50$4.30$18.50Anticipated Annual Cost Increase2.40%1.70%1.50%

Question

The Woodworks Company produces a variety of custom-designed wood furniture, made from either cherry or oak. The company knows that wood prices and labor costs are likely to increase in the future. The table below shows the number of board-feet and labor hours required for a bookshelf, the current costs per board-foot and labor hour, and the anticipated annual increases in these costs.Build a spreadsheet model that enables the company to experiment with the growth rates in wood and labor costs so that a manager can see, both numerically and graphically, how the costs of bookshelves vary in the next few years.ResourceCherryOakLaborRequired per Bookshelf303016Current Unit Cost5.505.504.30$18.50Anticipated Annual Cost Increase2.40%1.70%1.50%

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Solution

To build a spreadsheet model, follow these steps:

  1. Open a new Excel spreadsheet.

  2. In the first row, label the columns as follows: A1: "Year", B1: "Cherry Cost per Board-foot", C1: "Oak Cost per Board-foot", D1: "Labor Cost per Hour", E1: "Cherry Bookshelf Cost", F1: "Oak Bookshelf Cost".

  3. In the second row (A2 to D2), input the initial values. A2: "0" (representing the current year), B2: "5.50"(currentcostperboardfootforcherry),C2:"5.50" (current cost per board-foot for cherry), C2: "4.30" (current cost per board-foot for oak), D2: "$18.50" (current labor cost per hour).

  4. In the third row (A3 to D3), input the formulas for the anticipated annual cost increase. A3: "=A2+1" (increasing the year by 1), B3: "=B2*(1+2.4%)" (increasing the cherry cost by 2.4%), C3: "=C2*(1+1.7%)" (increasing the oak cost by 1.7%), D3: "=D2*(1+1.5%)" (increasing the labor cost by 1.5%).

  5. In the second row (E2 and F2), input the formulas for the total cost of a bookshelf. E2: "=(B230)+(D216)" (cherry bookshelf cost = cherry cost per board-foot * 30 board-feet + labor cost per hour * 16 hours), F2: "=(C230)+(D216)" (oak bookshelf cost = oak cost per board-foot * 30 board-feet + labor cost per hour * 16 hours).

  6. Drag the formulas in the third row (A3 to D3) and second row (E2 and F2) down as many rows as you want to forecast years.

  7. To create a graph, highlight the data in columns A, E, and F. Click on the "Insert" tab, then choose the "Line" chart. This will create a line graph showing how the costs of cherry and oak bookshelves vary over the years.

Remember to replace the percentages and costs with the actual values you have. This model will allow the manager to experiment with different growth rates and see how they affect the costs of bookshelves in the future.

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