60. Group Activity: Sensitivity Analysis and Decision Making. Performance Sports produces inflatable rafts used for river rafting. Sales have grown slowly over the years, and cost increases are causing Performance Sports to incur losses Financial data for the most recent year are shown. Members of the management group at Performance Sports arrived at these three possible courses of action to return the company to profitability (each scenario is independent of the others) 1. Increase the sales price for each raft by 10 percent, which will cause a 5 percent drop in sales volume. Although sales volume will drop 5 percent, the group increased sales price will more than offset the drop in rafts believes the 2. Decrease the sales price for each raft by 10 percent, which will cause an 8 percent increase in sales volume. Although the sales price will drop by 10 percent, the group believes an increase in rafts sold will more than offiset the sales price reduction 3. Increase advertising costs by $200,000, which will increase sales volume by 15 percent. Although fixed selling and administrative costs will increase by $200,000, the group believes the increase in rafts sold will more than offiset the increase in advertising costs. Required Form groups of two to four students and assign one of the three options listed previously to each group. Each group must perform the following requirements Calculate the projected operating profit (loss) for the option assigned, and determine whether the option is acceptable. a. b. Discuss and document the advantages and disadvantages of the option assigned. c. As a class, discuss each option based on the findings of your group. 60. Group Activity: Sensitivity Analysis and Decision Making. Performance Sports produces inflatable rafts used for river rafting. Sales have grown slowly over the years, and cost increases are causing Performance Sports to incur losses Financial data for the most recent year are shown. Members of the management group at Performance Sports arrived at these three possible courses of action to return the company to profitability (each scenario is independent of the others) 1. Increase the sales price for each raft by 10 percent, which will cause a 5 percent drop in sales volume. Although sales volume will drop 5 percent, the group increased sales price will more than offset the drop in rafts believes the 2. Decrease the sales price for each raft by 10 percent, which will cause an 8 percent increase in sales volume. Although the sales price will drop by 10 percent, the group believes an increase in rafts sold will more than offiset the sales price reduction 3. Increase advertising costs by $200,000, which will increase sales volume by 15 percent. Although fixed selling and administrative costs will increase by $200,000, the group believes the increase in rafts sold will more than offiset the increase in advertising costs. Required Form groups of two to four students and assign one of the three options listed previously to each group. Each group must perform the following requirements Calculate the projected operating profit (loss) for the option assigned, and determine whether the option is acceptable. a. b. Discuss and document the advantages and disadvantages of the option assigned. c. As a class, discuss each option based on the findings of your group
