Refer to the information from Problem 10.49, Parts 1, 2, and 3. The budget indicates that the

Question:

Refer to the information from Problem 10.49, Parts 1, 2, and 3. The budget indicates that the company is likely to incur a loss during the next period. The accountant asks you to assist him in developing sensitivity analyses that will help the manager identify possible ways to avoid a loss. To perform sensitivity analysis, you will alter volume of production, volume of sales, selling prices, direct material prices, wage rates, and overhead and support department costs.
Information from Problem 10.49, Parts 1, 2, and 3
Part1.
Following are the assumptions regarding revenues, direct materials and labour costs, and inventory levels:

Part2
Refer to the information for Part 1. Following are estimated manufacturing overhead costs. Both fixed and variable overhead will be allocated based on the number of kites produced:
Estimated variable manufacturing overhead costs:
Supplies .....................................................$160,250
Indirect labour ..............................................200,650
Maintenance ..................................................80,200
Miscellaneous ................................................40,100
Total variable overhead costs .........................$481,200
Estimated fixed manufacturing overhead costs:
Amortization ..............................................$211,728
Property taxes ................................................28,872
Insurance .....................................................67,368
Plant management .........................................240,600
Fringe benefits .............................................336,840
Miscellaneous ...............................................76,992
Total fixed overhead costs ...........................$962,400
Part3
Refer to the information for Parts 1 and 2. Following is the information that the accountant collected about support department costs:
Support department:............................. Fixed Costs
Administration.................................... $1,034,580
Marketing ..............................................620,748
Distribution ............................................310,374
Customer service .....................................103,458
Total support department costs ..................$2,069,160
REQUIRED
A. Identify the assumptions that are relevant for sensitivity analysis. Relevant assumptions are assumptions that the manager could potentially influence by changing the company's operating plans.
B. Identify possible changes in budget assumptions that might eliminate the forecasted loss (i.e., that would lead to a breakeven).
C. Perform sensitivity analysis, using the input section of your spreadsheet to determine a set of assumption changes that would cause budgeted income to break even. Explain your choices.
D. Describe uncertainties and their effects on the assumptions you made in Part A.