CIMA BA2 · Chapter 9 · Question 9 of 11
A company budgets to sell 20,000 units at $15 each. Variable cost is $9 per unit and fixed costs are $84,000. By what percentage could the SELLING PRICE fall before the company would make neither a profit nor a loss, assuming all other estimates are unchanged?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 12%
Explanation
Budgeted profit = (20,000 x $15) - (20,000 x $9) - $84,000 = $300,000 - $180,000 - $84,000 = $36,000. A fall in price reduces revenue directly, so revenue can fall by $36,000 before profit is eliminated. Sensitivity = $36,000 / $300,000 = 12%.
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