Chapter 10 Application Software Exercise Solution Description
This problem is useful for showing students how a rudimentary DSS works and for illustrating the concepts of “what-if” analysis and sensitivity analysis.
Instructors may need to spend a little time explaining breakeven analysis to students. Discuss with the students the fact that the principal idea behind break-even analysis is that all costs are variable (which means they vary with output), fixed (which means they are relatively constant over time), or a combination of both. Theoretically, after fixed costs are covered, each dollar of sales will have to cover only variable costs.
The problem here has been simplified so that it treats Selmore as a one-product company and calculates the breakeven point for one product. The actual breakeven calculations in the real business world would be much more complicated and perhaps too challenging for most students taking the course. Students will need to know how to use the data-table command for sensitivity analysis in order to solve this problem.
The solution spreadsheet was designed so that one can easily recalculate the breakeven point when the selling price is $125 by entering $125 as the sale price per unit.