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SENSITIVITY

This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.

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August 19, 2022 at 12:33 pm #663517
accaamnaacca
Participant
- Topics: 16
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Mylo is now considering investing in a speciality coffee machine. He has estimated the
following daily results for the new machine:
$
Sales (650 units) 1,300
Variable costs (845)
–––––
Contribution 455
Incremental fixed costs (70)
–––––
Profit 385
–––––
Which of the following statements are true regarding the sensitivity of this
investment?
(1) The investment is more sensitive to a change in sales volume than sales price.
When solving statement 1 how do we know what to put in denominator for sales price and sales volume sensitivity?
August 19, 2022 at 3:31 pm #663631
John Moffat
Keymaster
- Topics: 57
- Replies: 54570
You take the profit (385) as a % of whatever will change (so contribution (455) in the case of sales volume, and sales (1,300) in the case of sales price).
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