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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What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
Using terminology Match the following terms with the correct definitions:
1. Costs that do not change in total over wide ranges of volume.
2. Technique that estimates profit or loss results when conditions change.
3. The sales level at which operating income is zero.
4. Drop in sales a company can absorb without incurring an operating loss.
5. Combination of products that make up total sales.
6. Net sales revenue minus variable costs.
7. Describes how a cost changes as volume changes.
8. Costs that change in total in direct proportion to changes in volume.
9. The band of volume where total fixed costs and variable cost per unit remain constant.
a. Breakeven point
b. Contribution margin
c. Cost behavior
d. Margin of safety
e. Relevant range
f. Sales mix
g. Fixed costs
h. Variable costs
i. Sensitivity analysis
Complete the table below for the missing amounts:
A B C
Number of units 2,064 units (d) 2,570 units
Sales price per unit \( 250 \) 125 $ (g)
Variable costs per unit (a) 50 4,528
Contribution margin per unit 125 (e) (h)
Total contribution margin (b) 1,567,500 (i)
Contribution margin ratio (c) (f) 20%
Use the following information to complete Short Exercises S20-16 and S20-17.
Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:
Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140
Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.
S20-17 Calculating breakeven point for two products
For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket.
Requirements
1. Compute the new weighted-average contribution margin per ticket.
2. Calculate the total number of tickets Wild Waters must sell to break even.
3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.
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.
Compute Funday Park’s contribution margin ratio. Carry your computation to two decimal places. Use the contribution margin ratio approach to determine the sales revenue Funday Park needs to break even
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