Assume Only the Specified Parameters (That Is, Variables) Change in a Sensitivity

question 57

Multiple Choice

Assume only the specified parameters (that is, variables) change in a sensitivity analysis. If the contribution margin increases by $2 per unit, then operating profits will:

• A) Also increase by $2 per unit.
• B) Increase by less than $2 per unit.
• C) Decrease by $2 per unit.
• D) Increase, but by an indeterminate amount.
• E) Decrease, but by an indeterminate amount.

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Definitions:

Direct Costs

Expenses that can be directly traced to the production of specific goods or services, such as raw materials and labor.

Period Costs

Expenses that are not directly associated with the production process and are expensed in the period they are incurred.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and regulators.

Direct Manufacturing Cost

Expenses that are directly attributable to the production of goods, including materials and labor directly involved in the manufacture.