Anya is the marketing manager at Education Plus, an Internet retail company that sells children's educational books and supplies. Anya believes that the company could increase sales by $5 million next year if the company spends a fixed $2 million on advertisements with Google and other popular search engines. Using CVP analysis, she estimated that her proposal would increase pre-tax income by $0.5 million.
a)Discuss possible reasons why Anya might be biased in her revenue and cost estimates.
b)Discuss how uncertainties and biases affect interpretation of CVP results.
c)Assume that Anya is not biased in her analysis. How could sensitivity analysis help her analyze the reasonableness of her estimates?
d)Discuss how consideration of the company's degree of operating leverage could affect whether the top managers accept Anya's proposal.

Question

Quizplus · Accepted Answer

The Answer of Anya is the marketing manager at Education Plus, an Internet retail company that sells children's educational books and supplies. Anya believes that the company could increase sales by $5 million next year if the company spends a fixed $2 million on advertisements with Google and other popular search engines. Using CVP analysis, she estimated that her proposal would increase pre-tax income by $0.5 million.
a)Discuss possible reasons why Anya might be biased in her revenue and cost estimates.
b)Discuss how uncertainties and biases affect interpretation of CVP results.
c)Assume that Anya is not biased in her analysis. How could sensitivity analysis help her analyze the reasonableness of her estimates?
d)Discuss how consideration of the company's degree of operating leverage could affect whether the top managers accept Anya's proposal.

Anya Is the Marketing Manager at Education Plus, an Internet