 Managers need to be prepared for changing business conditions. Often we call this what-if or sensitivity analysis. CVP is a powerful tool to do this kind of analysis. Sometimes sensitivity analysis can seem overwhelming with so much data to consider. But let's focus on the steps. The first and most important step is to calculate a new unit contribution margin using either new sales price or new variable cost or both. Then we will use the new unit contribution to compute break-even sales and units or targeted operating income. So let's assume the following. Price is $50. Variable cost is $30. Our contribution margin is $20. Fixed costs are $10,000, so our break-even is 500 units. But what if management is considering a 10% price decrease based on pricing pressures from competitors? What is break-even now? We need to calculate the new unit contribution margin. In this case a 10% decrease in price drops the price from $50 per unit to $45 per unit. So the unit contribution margin drops from $20 to $15. Thus the break-even in units increases to 667 units with a price decrease. What if variable costs are increasing, let's say 10%? What is the break-even now? We need to calculate the new unit contribution margin. In this case a 10% increase in variable costs increases it from $30 to $33 and drops unit contribution margin from $20 to $17. So a break-even in units increases to 588 units with a variable cost increase. What if fixed costs could be reduced by 10%? What is break-even now? Well we need to calculate the new unit contribution margin. Only in this case the unit contribution margin doesn't change because neither price nor variable costs are changing. So fixed costs are reduced from $10,000 to $9,000 and therefore break-even in units decreases to 450 units with a fixed cost decrease. Alright, what will break-even be if all three things happen? Did your head just spin around? Don't worry, the steps are just the same. We need to calculate a new contribution margin. So price is decreasing 10%, dropping from $50 to $45. Variable costs is increasing from $30 to $33. So our unit contribution margin is now $12. Only fixed costs decrease from $10,000 to $9,000. When we factor all three changes, we determine that break-even increases to 750 units sold, which is a 50% increase from where we started. Clearly these changes should be avoided if possible.