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- February 20, 2020 at 4:33 am
Sales (650 units)-1300
VC -(845)
Contribution -455
Increemental F.C-(70)
Profit -385In the above question I did not understood why and how “The investment is more sensitive to a change in the sales price than sales volume”
February 20, 2020 at 7:33 amIf the sales price changes by 1% then just the revenue changes by 13. Therefore the profit changes by 13 as well which is a change of 13/385 = 3.38%
If the volume changes by 1% then the contribution changes by 4.55. Therefore the profit changes by 4.55 which is a change of 4.55/385 = 1.18%
Therefore a change in sales price causes the biggest change in the profit, and therefore it is more sensitive.
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