# midterm

## midterm

﻿5. D (40-12)*2*Q+(50-40)*Q=73,500/(1-30%)+840,000

6. a. Breakeven point=(10,000+8,000)/(30-20)=1,800 batteries
b. Margin of safety=60,000-30*1,800=\$6,000 margin of safety=budgeted(actual) revenues – breakeven revenues
c. Breakeven point=(10,000+8,000)/(30-24) =3,000 batteries
d. Breakeven point=(9,000+7,900)/(33-20) =1,300 batteries

7. Sensitivity analysis is a “what-if” technique managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The analysis answers questions such as “What will operating income be if the quantity of units sold decreases by 5% from the original prediction?” and “What will operating income be if variable cost per unit increases by 10%?” This helps visualize the possible outcomes that might occur before the company commits to funding a project. For example, companies such as Boeing and Airbus use CVP analysis to evaluate how many airplanes they need to sell in order to recover the multibillion-dollar costs of designing and developing new ones. The managers then do a sensitivity analysis to test how sensitive their conclusions are to different assumptions, such as the size of the market for the airplane, its selling price, and the market share they think it can capture. Electronic spreadsheets, such as Excel, enable managers to systematically and efficiently conduct CVP-based sensitivity analyses and to examine the effect and interaction of changes in selling price, variable cost per unit, and fixed costs on target operating income. Sensitivity analysis gives managers a good feel for a decision’s risks. It is a simple approach to recognizing uncertainty, which is the possibility that an actual amount will deviate from an expected amount. Amore comprehensive approach to recognizing uncertainty is to compute expected values using probability distributions.

8. One way to dispose of underallocated or overallocated overhead costs at the end of a...