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SENSITIVITY ANALYSIS

presented by-
Group-8
1. Tanmay Sarkar
2. Swati Rakhsit
3. Surodip Majumdar
4. Suryasis Basu
5. Sumit Gupta
6. Surendra Prasad
Sharma
What is sensitivity analysis?

• The introduction of alternative assumptions into the basic analysis


and the investigation of associated changes in the model's results is
known as sensitivity analysis.

• sensitivity analysis is a “what-if” technique that examines how a


result will change if the original predicted data are not achieved or if
an underlying assumption changes
• What will happen to operating income if volume declines by 5%?
• What will happen to operating income if variable costs increase by
10% per unit?
• sensitivity analysis broadens management’s perspectives about
possible outcomes
Four possible variables/factors
• Changes in selling price.
• Changes in variable cost per unit.
• Changes in sales volume.
• Changes in fixed cost.

• Any single factor or combination of two or more factors could be at


work at any time.
• Total 15 combinations can be made from 4 factors. [(n2 -1) here
n=4, so (42-1) =15]
• 15 combination increases.
• 15 combination decreases.
Example

selling price/unit Rs 10
variable cost/unit Rs 6
fixed cost Rs 60,000
Volume forecast 20,000 unit

What would possible profit and BEP, if underlying situation arrive?

Situation A- 10% increase in selling price only.


Situation B- 10 % decrease in variable cost only.
Situation C- 10% increase in sales volume only.
Situation D- 50% increase in fixed cost only.
Situation E- 20% increase in VC & 10% decrease sales volume only.
Situation F- 20% increase FC &10% decrease VC only.
Summaries table
SP/ VC/ CNTRIB/ SALES TOTAL PROFIT BEP
UNIT UNIT UNIT VOL FC (RS)
(RS) (RS) (RS) (UNIT) (RS) (UNIT)
FORECAST 10 6 4 20000 60000 20000 15000

SIT n- A 11 6 5 20000 60000 40000 12000

SIT n – B 10 5.4 4.6 20000 60000 32000 13043

SIT n– C 10 6 4 22000 60000 28000 15000

SIT n - D 10 6 4 20000 90000 -10000 22500

SIT n – E 10 7.2 2.8 18000 60000 -9600 21429

SIT n - F 10 5.4 4.6 20000 66000 26000 14348


Sensitivity analysis of dolphy software Ltd
selling price per unit Rs 200

cost profit
FC VC 0 (BEP) 1,000 1,500 2,000
2000 100 4,000 6,000 7,000 8,000
120 5,000 7,500 8,750 10,000
140 6,667 10,000 11,667 13,333
2500 100 5,000 7,000 8,000 9,000
120 6,250 8,750 10,000 11,25O
140 8,333 11,667 13,333 15,000
3000 100 6,000 8,000 9,000 10,000
120 7,500 10,000 11,250 12,500
140 10,000 13,333 15,000 16,667
conclusion
To ascertain possible profit when change in variables
take place.
It acts as a management tool.
Helps business decision making.
THANK YOU