Chapter 20: Q20RQ (page 1119)
What is sensitivity analysis? How do managers use this tool?
Answer
A sensitivity analysis is a “what if” technique.
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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
What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
Mi Tierra Driving School charges \(680 per student to prepare and administer written and driving tests. Variable costs of \)408 per student include trainers’ wages, study materials, and gasoline. Annual fixed costs of \(63,920 include the training facility and fleet of cars.
Requirements
1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to \)544 per student.
c. Decrease variable costs to \(340 per student.
d. Decrease fixed costs to \)53,040.
2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.
What is the margin of safety? What are the three ways it can be expressed?
Question: Use the following information to complete Short Exercises S20-10 through S20-15.
Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.
S20-10 Computing contribution margin per unit, breakeven point in sales units
Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.
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