Sensitivity Analysis Using Product Costing

Abstract

Sensitivity Analysis in Product Costing as a concept is explained in this research article with help of an example case study setting. The research article explains the Concept and Practical Approach to the Sensitivity Analysis. Sensitivity Analysis involves the key task of identifying the Cost Elements / Cost Components to be tested for Sensitivity. This has to be gauged on the basis of Materiality & Controllability. Sensitivity Analysis in Product Costing is a result of Cost & Operational information and hence offers a more comprehensive guideline for Cost Control & Profit Maximisation. The example case of a Base Metal Industry in this research article gives the flow and method of carrying out Sensitivity Analysis. The case presents the interpretation of the results and use of Sensitivity Analysis in Decision Making Process for Cost Control and Profit Maximisation. In the illustrated case clearly indicates how the Sensitivity Analysis has helped the Management to concentrate their efforts of Cost Control and Profit Maximisation by concentrated efforts on Process Scrap Reduction, Labour Deployment Analysis and Introduction of Specific Incentive Schemes for Production Team.