Recommending and justifying an appropriate cost analysis
Our recommended levels of production are based upon the sensitivity analysis attached. We have concluded that contribution margins (and therefore profitability) is most sensitive to changes in demand for products A and C. This means that changes to the production numbers of these products impact the profitability of Bayview more than an equivalent change to Product B.
Based upon our analysis, we believe that sales and marketing efforts be concentrated on those products for which the company is most vulnerable to fluctuating demand. The purpose therefore should be to ensure that lower levels of product fluctuation occur for these products. Our sensitivity analysis also proves that production operating constraints should be pro-actively managed so as to allow for more (or optimal) flexibility while producing these products.
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