Twisto Pretzel Company is vigilant in their decision making process, which evaluates all manufacturing costs involved to measure the Company’s growth by measuring profitability. Twisto Pretzel Company goal is determined to remain financially stable in the support of its customers, suppliers, and the Company’s associates.
In conducting my research, I looked into the Company’s financial data for 2011, by utilizing additional year-end data of 2010. The data consisted of purchases of raw material, ending work-in process inventory, and indirect labor. Determining the impact of the Company’s profitability, a sensitivity analysis in cost of goods manufactured, cost of goods sold, and identifiable variable changes, impacted costs and the Company’s net income. The Company’s management team provided three scenarios that illustrate my objective.
Significance of the Sensitivity Analysis
Sensitivity analysis is a technique that addresses how changes in variables affect the uncertainty of a given set of assumptions. The results will illustrate how the analysis determines the estimates, upon which it is based. To better demonstrate how the analysis will work for Twisto Pretzel Company for December 31, 2011, I have conducted three separate analyses that demonstrate how each analysis impacts the Company’s profitability:
1. Case 1 – Sensitivity Analysis Purchases of Raw Materials increases by 15%
Assuming that all other inventory balances remain the fixed, the value of purchases of raw material, will be increased by 15% for the current year. Purchases of raw material increased from $39,000 to $44,850, the total cost of goods
