Sensitivity Analysis

You sit on the board of directors for a nonprofit history museum. The museum charges a small admission fee to cover its operating expenses. The objective is to break even. A local benefactor recently pledged an annual donation of $25,000 to the museum.

In a recent strategy meeting, the president suggested the museum raise the price of admission, so that the companys “break-even point would be lower.” The financial manager responded by agreeing they should raise the price and stated the company would be less likely to incur a loss.”

How will the donation affect the museums break-even attendance level?
What would happen to the break-even point if the admission price and unit variable costs increased by the same dollar amount?
Do you agree with the president and/or the financial manager? Why?
Consider two museums with identical fixed expenses, unit variable costs, and profits.  One company has a much lower admission price. Explain how this can happen.

 

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