Cvp Case Study

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Cost – Volume – Profit or also known as CVP is an analysis method of cost accounting. It is use in managerial economic. CVP is the study of the effects of changes in cost and volume on a company’s profits. It is a method of analysing the relationship between changes in output and changes in total sales revenues, expenses and net profit. QUESTION 1 (a) How do managers use CVP analysis to make decisions? Describe at least FIVE (5) uses of CVP analysis. Managers are concern about the impact of their decision on profit. The decisions they make are about volume, pricing or incurring a cost. Therefore, manager requires an understanding of the relationship among revenues, cost, volume and profit. The cost accounting department supplies the data…show more content…
Targeted income is the amount of revenue a company wants to generate for the current accounting period. Achieve the maximum revenue is a goal for every company. In order to achieve the goal, every company may use cost-volume-profit analysis as a ways target their income. To calculate the required sales level, the targeted income is added to fixed costs, and the total is divided by the contribution margin ratio to determine required sales dollars, or the total is divided by contribution margin per unit to determine the required sales level in units. Cost-volume-profit also used to set a minimum product to sell. In order to avoid loss, the company can use breakeven point as tools to set a minimum product to sell. Breakeven points are useful for planning and control purpose. The total contribution is just enough to cover the fixed costs. Breakeven point is used to determine how much sales volume needed to start making…show more content…
It is important to identify start-up costs, which will help company determine their sales revenue needed to pay on-going business expenses. This analysis is a key part of any good business plan. Refer to the question, I am not agreeing with the statement. It is because, breakeven analysis can be helpful even before company decide to write a business plan, when they are trying to figure out if an idea is worth pursuing. Long after company is up and running, it can remain helpful as a way to figure out the best pricing structure for products. Basically, a break-even analysis lets you know how many units of stuff—say, how many ham sandwiches, iPhone apps, or hours of consulting services—you must sell in order to cover your costs. A company can survive by using the breakeven analysis. The company can make a right decision by using that technique. The company able to set the minimum product to sell to cover their expenses if know their breakeven
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