Hello Sir, I hope you're safe and are doing good, kindly clear this small doubt that I have with the answer key of Ques 20 ( the last part of Mylo)
''The investment is more sensitive to a change in sales price of 29·6%, so Statement 1 is incorrect''
Ok so I don't understand where I'm going wrong, even though I get the overall answer correct that the question statement is false... the thing is that I get same percentages for both sales price and sales volume sensitivity, Could you please tell me what the correct percentages would be
My working is ---> (650-457.5)/650 * 100 = 29.6% for volume as well so why does the answer key say that investment is more sensitive to change in price when both the percentages are same.
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MYLO SEP 16
6y ago#1If the sales price changes then only the 1,300 will change, the variable overheads will stay the same. For a profit of zero, the contribution will have to be 70, and therefore the total sales will have to be 70 + 845 = 915. Therefore the revenue will have to fall by 1,300 - 915 = 385. So a fall of 385/1,300 = 29.6%
If the sales volume changes then both the sales revenue and the variable cost (and therefore the contribution) will change.
For a profit of zero the contribution will have to be 70, and therefore the total contribution will have to fall by 455 - 70 = 385. So a fall in contribution of 385/455 = 84.6%.
Oops totally missed its effect of variable cost too, you're the smartest!!! thank youuuuuuuuuu
6y ago#3You are welcome :-)
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