Question

How can sensitivity analysis be used to increase the benefits of​ budgeting?

A. Sensitivity analysis is used to ensure the employees are happy in their job. This will lead to an increase in​ production, and​ therefore, sales and profits will increase as well. The budgets reflect this increase in sales and production.
B. Sensitivity analysis helps in sales forecasting. It uses indicators of economic activity and past sales data to forecast future sales. In the sensitivity​ analysis, the sales forecast​ (budget) should represent the collective experience and judgment of managers.
C. Sensitivity analysis adds an extra dimension to budgeting. It enables managers to examine how budgeted amounts change with changes in the underlying assumptions. This assists managers in monitoring those assumptions that are most critical to a company in attaining its budget and allows them to make timely adjustments to plans when appropriate.
D. Sensitivity analysis increases the benefits of budgeting by comparing the last 5 years actuals against the current budget. The budget is then adjusted for increases or decreases as deemed necessary.

Answer 1

The correct answer is c

Step-by-step explanation:

Sensitivity analysis is a technique that permits the analysis of changes in assumptions used in forecast. It helps judge the degree of risk and also recognises and allows us to identifie whether or not there is an accurate forescast.