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 is a mixed cost? Give an example.
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 \(170,800 per month.
Refer to the original information (ignoring the changes considered in Short Exercise S20-12). Suppose Funday Park increases fixed costs from \)170,800 per month to $231,000 per month. Compute the new breakeven point in tickets and in sales dollars.
Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).
| EFFECT | ||||||||
| Sales Line | Fixed Cost Line | Total cost line | Breakeven point | |||||
Change | Slope Increases | Slope decreases | Shifts up | Shifts Down | Slope Increases | Slope Decreases | Increases | Decreases |
Sales price per unit Increases | ||||||||
Sales price per unit Decreases | ||||||||
Variable cost per unit Increases | ||||||||
Variable cost per unit decreases | ||||||||
Total fixed cost increases | ||||||||
Total fixed cost decreases | ||||||||
What is target profit?
What is cost-volume-profit analysis?
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