This exhibit provides an example of a sensitivity analysis that might be performed by management accountants, evaluating the changing profitability based on two important inputs, the level of total fixed costs, and the sales price. To perform sensitivity analysis, the analysis varies the sales price from $35 to $53 (as shown in the columns) and the fixed costs from $500 to $3,000 (as shown in the rows). The colored columns are the total profits based on the changing input parameters. When combined with conditional formatting, the estimated profitability can be evaluated. 500 Fixed Costs Sales Price $ 35.00 $37.00 $39.00 $41.00 $ 43.00 $ 45.00 $ 47.00 $49.00 $51.00 $ 53.00 4000.00 4600.00 5200.00 5800.00 6400.00 7000.00 7600.00 8200.00 8800.00 750 3750.00 4350.00 4950.00 5550.00 6150.00 6750.00 7350.00 7950.00 8550.00 9150.00 9400.00 1,000 3500.00 4100.00 4700.00 $300.00 5900.00 6500.00 7100.00 7700.00 8300.00 8900.00 1,250 3250.00 3850.00 4450.00 5050.00, 5650.00 6250.00 6850.00 7450.00 8050.00 1,500 3000.00 3600.00 4200.00 4800.00 5400.00 6000.00 6600.00 7200.00 7800.00 8400.00 8650.00 1,750 2750.00 3350.00 3950.00 4550.00 5150.00 5750.00 6350.00 6950.00 7550.00 8150.00 2,000 2500.00 3100.00 3700.00 4300.00 4900.00 5500.00 6100.00 6700.00 7300.00 7900.00 2,250 2250.00 2850.00 3450.00 4050.00 4650.00 5250.00 5850.00 6450.00 7050.00 7650.00 2,500 2000.00 2600.00 3200.00 3800.00 4400.00 5000.00 5600.00 6200.00 6800.00 7400.00 2,750 1750.00 2350.00 2950.00 3550.00 4150.00 4750.00 5350.00 5950.00 6550.00 7150.00 3,000 1500.00 2100.00 2700.00 3300.00 3900.00 4500.00 5100.00 5700.00 6300.00 6900.00 Answer the following questions based on the information provided. Question 1. As sales price increases, what happens to the estimated profitability? 2. As total fixed costs increase, what happens to the estimated profitability? 3. If the sales price is $53 and total fixed costs are $3,000, what is the estimated profitability? 4. If the sales price is $45 and total fixed costs are $500, what is the estimated profitability? 5. Which is more impactful on profitability, a $2 increase in sales price per unit or a $250 decrease in total fixed costs? Answer

This exhibit provides an example of a sensitivity analysis that might be performed by management accountants, evaluating the changing profitability based on two important inputs, the level of total fixed costs, and the sales price. To perform sensitivity analysis, the analysis varies the sales price from $35 to $53 (as shown in the columns) and the fixed costs from $500 to $3,000 (as shown in the rows). The colored columns are the total profits based on the changing input parameters. When combined with conditional formatting, the estimated profitability can be evaluated. 500 Fixed Costs Sales Price $ 35.00 $37.00 $39.00 $41.00 $ 43.00 $ 45.00 $ 47.00 $49.00 $51.00 $ 53.00 4000.00 4600.00 5200.00 5800.00 6400.00 7000.00 7600.00 8200.00 8800.00 750 3750.00 4350.00 4950.00 5550.00 6150.00 6750.00 7350.00 7950.00 8550.00 9150.00 9400.00 1,000 3500.00 4100.00 4700.00 $300.00 5900.00 6500.00 7100.00 7700.00 8300.00 8900.00 1,250 3250.00 3850.00 4450.00 5050.00, 5650.00 6250.00 6850.00 7450.00 8050.00 1,500 3000.00 3600.00 4200.00 4800.00 5400.00 6000.00 6600.00 7200.00 7800.00 8400.00 8650.00 1,750 2750.00 3350.00 3950.00 4550.00 5150.00 5750.00 6350.00 6950.00 7550.00 8150.00 2,000 2500.00 3100.00 3700.00 4300.00 4900.00 5500.00 6100.00 6700.00 7300.00 7900.00 2,250 2250.00 2850.00 3450.00 4050.00 4650.00 5250.00 5850.00 6450.00 7050.00 7650.00 2,500 2000.00 2600.00 3200.00 3800.00 4400.00 5000.00 5600.00 6200.00 6800.00 7400.00 2,750 1750.00 2350.00 2950.00 3550.00 4150.00 4750.00 5350.00 5950.00 6550.00 7150.00 3,000 1500.00 2100.00 2700.00 3300.00 3900.00 4500.00 5100.00 5700.00 6300.00 6900.00 Answer the following questions based on the information provided. Question 1. As sales price increases, what happens to the estimated profitability? 2. As total fixed costs increase, what happens to the estimated profitability? 3. If the sales price is $53 and total fixed costs are $3,000, what is the estimated profitability? 4. If the sales price is $45 and total fixed costs are $500, what is the estimated profitability? 5. Which is more impactful on profitability, a $2 increase in sales price per unit or a $250 decrease in total fixed costs? Answer

Century 21 Accounting Multicolumn Journal

11th Edition

ISBN:9781337679503

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section: Chapter Questions

Problem 1MP

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