To Manufacture, or Not to Manufacture?\" Please respond to the following: Imagin

Question

To Manufacture, or Not to Manufacture?"  Please respond to the following:

Imagine that you are the cost accounting manager and the director of your present or past organization. Management wants your opinion on whether the company should manufacture a new electric car. You informed management that you will need to perform a sensitivity analysis prior to making that decision. Compose a brief report to management explaining the importance of preparing a sensitivity report. Identify two (2) questions the sensitivity analysis should answer.

Explanation / Answer

A sensitivity analysis is a technique used to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that depend on one or more input variables, such as the effect that changes in interest rates have on bond prices.

It is also called what-if or simulation analysis. It is a way to predict the outcome of a decision given a certain range of variables. By creating a given set of variables, we can determine how changes in one variable impact the outcome.

Two questions that sensitivity analysis should answer are:

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