What is the purpose of sensitivity analysis?

• A. Tests how results change with varying inputs.
• B. Calculates the break-even point.
• C. Allocates overhead costs by activities.
• D. Measures governance effectiveness.

Answer: (A)

Sensitivity analysis is about how outcomes change when you vary inputs, assumptions, or parameters. It helps you see which assumptions have the biggest impact on results and how robust your conclusions are under uncertainty. In practice, you might tweak revenue, costs, or discount rates to observe effects on metrics like NPV or profitability, guiding where to improve data accuracy or adjust strategies.

The other ideas describe different tools or goals: breaking even identifies the sales level to cover costs, activity-based costing assigns overhead by activities, and governance measures evaluate how well an organization is being run. None of these focus on how results shift when inputs change the way sensitivity analysis does.