A project's susceptibility to undesirable fluctuations in the value of the underlying factors, such as the sales price, sales units, its indirect cost, and other variables, is assessed using sensitivity analysis.
<h3>Sensitivity analysis: What is it?</h3>
According to a specific set of assumptions, sensitivity analysis evaluates how various values of an exogenous variables impact a specific dependent variable. In other words, analyses look at how different types of ambiguity in a mathematical formula affect the overall level of uncertainty in the model.
<h3>Briefing:</h3>
Project has an eight-year lifespan, costs $848,000, and has no residual value. Over the course of the project's life, depreciation decreases linearly to zero.
Depreciation = $848,000 / 8 = $106,000
Contribution margin per unit = selling price - variable cost per unit
= 40 - 20 = $20 per unit
Accounting break-even point = (Fixed costs + Depreciation) / Contribution per unit
= (625,000 + 106,000) / 20
= 36,550 units
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