Therefore, this model assumes that the costs of one product are related to the units sold of the other.

Youll usually face formulas with at least two and sometimes dozens of variables.

Often, a problem will have more than one solution, and your challenge will be using Excel to find the optimal solution (that is, the one that maximizes profit, or minimizes costs, or matches other criteria).

Excel Solver is a sophisticated optimization program that enables you to find the solutions to complex problems that would otherwise require high-level mathematical analysis.

Using iteration means that Excel Solver tries a solution, analyzes the results, tries another solution, and so on.

However, this cyclic iteration isnt just guesswork on Solvers part.

No, Excel Solver examines how the results change with each new iteration and, through some sophisticated mathematical processes (which, thankfully, happen way in the background and can be ignored), can usually tell in what direction it should head for the solution.

In fact, Excel Solver brings a number of advantages to the table.

For example, you can tell Solver to find a solution that not only maximizes profit, but also satisfies certain conditions, such as achieving a gross margin between 20 and 30 percent, or keeping expenses less than 100,000.

These conditions are said to be constraints on the solution.

For example, looking for an optimal result might mean that you can find a solution thats the maximum or minimum possible.

You can then save these different solutions under different scenarios.

It would be overkill, for example, to use Solver to compute net profit given fixed revenue and cost figures.

Many problems, however, require nothing less than the Solver approach.

These problems cover many different fields and situations, but they all have the following characteristics in common.

This formula could be a calculation such as total transportation expenses or net profit.

Solver adjusts these cells to find the optimal solution for the objective cell formula.

For example, you might require that advertising be less than 10 percent of total expenses, or that the discount to customers be an amount between 40 and 60 percent.

The model shows revenue (price times units sold) and costs for two products, the profit produced by each products, and the total profit.

The question to be answered here is this: How many units of each product must be sold to get a total profit of 0 This is known in business as a break-even analysis.

Normally, the variable costs of a product are its unit cost times the number of units sold.

If it costs 10 to produce product A, and you sell 10,000 units, the variable costs for that product are 100,000.

However, in the real world, such costs are often mixed up among multiple products.

For example, if you run a joint advertising campaign for two products, those costs are borne by both products.

Excel For Mac What If Analysis