What is sensitivity analysis? How do managers use this tool?
A sensitivity analysis is a “what if” technique.
A sensitivity analysis is a “what if” technique. It helps in assessing profit or loss results if sales price, costs, volume, or underlying assumptions change.
Managers keep low breakeven points so that the targets can be easily achievable. But they do not overemphasize this aspect of CVP analysis.
Crandall Company sells flags with team logos. Crandall has fixed costs of $583,200 per year plus variable costs of $4.80 per flag. Each flag sells for $12.00.
1. Use the equation approach to compute the number of flags Crandall must sell each year to break even.
2. Use the contribution margin ratio approach to compute the dollar sales Crandall needs to earn $33,000 in operating income for 2018. (Round the contribution margin ratio to two decimal places.)
3. Prepare Crandall’s contribution margin income statement for the year ended December 31, 2018, for sales of 70,000 flags. (Round your final answers up to the next whole number.)
4. The company is considering an expansion that will increase fixed costs by 21% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should Crandall undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)
Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit
Compute the missing amounts for the following table.
A B C Sales price per unit $ 200 $ 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate:
Contribution margin per unit
Contribution margin ratio
Required units to break even
Required sales dollars to break even
Required units to achieve target profit
A furniture manufacturer specializes in wood tables. The tables sell for $100 per unit and incur $40 per unit in variable costs. The company has $6,000 in fixed costs per month.
6. Prepare a contribution margin income statement for one month if the company sells 200 tables.
7. What is the total contribution margin for the month when the company sells 200 tables?
8. What is the unit contribution margin?
9. What is the contribution margin ratio?
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