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What is sensitivity analysis? How do managers use this tool?

Short Answer

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Answer

A sensitivity analysis is a “what if” technique.

Step by step solution

01

Sensitivity analysis

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.

02

How do managers use sensitivity analysis

Managers keep low breakeven points so that the targets can be easily achievable. But they do not overemphasize this aspect of CVP analysis.

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