ACCA MA Syllabus D. Budgeting - ‘What if’ analysis - Notes ^{5 / 6}

Ask questions using “what if …”.

For example:

• What if the Sales decrease by 20%

• What if the Cost of sales increase by 10%

• 'What if’ analysis is a form of sensitivity analysis which allows the effects of changing one or more data values to be quickly recalculated.

• It enables each of the input values to be changed both individually and in combination to see the effects on the final result.

Steps of What-If analysis:

1. Defining areas of interest (e.g. Profit)

2. Generating questions (if) - e.g. what if cost of sales increase by 1%

3. Generating answers (e.g. profit will decrease by 1%)

Illustration

Revenues               100%
Variable costs        (50%)
Fixed costs             (20%)
Profit                       30%

What If the sales volume turns to be only 70%?

Solution

Revenues                              70%
Variable costs 50 x 0.70 = (35%)
Fixed costs                          (20%)
Profit 70 - 35 - 20 =              15%