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Sensitivity Analysis

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The McKenzie Transportation Company specializes in hauling goods over long distances. The company's revenues and expenses depend upon Revenue Miles, which is a measure that combines both weight and mileage.

Following are the summarized budget data for next year. They are based upon the predicted total Revenue Miles of 800,000.

Average Selling Price per Revenue Mile.........................$1.50
Average Variable Expense per Revenue Mile................$1.30
Total Fixed Expenses..........................$110,000

Management is trying to decide how various possible conditions or decisions might affect Net Income. Please ignore Income Taxes.

Please compute the Net Income for each of the following cases.
Consider each case INDEPENDENTLY.

a) A 10% increase in Revenue Miles.
b) A 10% increase in Sales Price, per Revenue Mile.
c) A 10% increase in Variable Expenses per Revenue Mile.
d) A 10% increase in Total Fixed Expenses
e) An increase of 5% in Sales Price per Revenue Mile in combination with a decrease of 10% in the number of
Revenue Miles.

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Solution Summary

Net income for changes in revenue miles, sales price, variable expenses and total fixed expenses is calculated.

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