Sensitivity Analysis is also known as 'what-if' analysis. It examines the effect on profit brought about by changes in the following: selling price; sales volume; variable costs; fixed costs.

Sensitivity Analysis is also known as 'what-if' analysis. It examines the effect on profit brought about by changes in the following: selling price; sales volume; variable costs; fixed costs.

• A. What-if analysis; changes in selling price, sales volume, variable costs and fixed costs.
• B. What-if analysis; changes in selling price only.
• C. What-if analysis; changes in sales volume only.
• D. What-if analysis; changes in variable costs and fixed costs only.

Answer: (A)

Sensitivity analysis, also known as what-if analysis, looks at how profit changes when you vary the main drivers of profit. Profit is revenue minus costs, so it can be influenced by selling price and sales volume (which affect revenue) as well as variable costs and fixed costs (which affect total costs). By examining how profit responds to changes in all four factors, you get the full picture of potential outcomes. Therefore the description that includes changes in selling price, sales volume, variable costs and fixed costs is the best fit, because it covers every lever that can impact profitability.

Sensitivity analysis, also known as what-if analysis, looks at how profit changes when you vary the main drivers of profit. Profit is revenue minus costs, so it can be influenced by selling price and sales volume (which affect revenue) as well as variable costs and fixed costs (which affect total costs). By examining how profit responds to changes in all four factors, you get the full picture of potential outcomes. Therefore the description that includes changes in selling price, sales volume, variable costs and fixed costs is the best fit, because it covers every lever that can impact profitability.