Description
A. Using the Internet, review at least 3 articles on Profit-Cost-Volume relationship. Summary (300 words or more) the articles in your own words.
B. As a manager, why is Profit-cost-volume important in planning? Support your response with numerical example(s)
C. Using the Internet, review at least 3 articles on Variable Costing. Summary (300 words or more) the articles in your own words.
D. As a manager, discuss how you would use Variable Costing in managerial decisions Support your response with numerical example(s)
Read and respond to at least 3 of your classmates’ posts. Posts attached below.
Discussion 2
Respond 1:
Concept of cost volume profit analysis
This analysis is nothing but it is described as an analytical tool where it can help study
the volume relationship, cost relationship comprises relationship and profit relationship.
This is very much an extension of marginal costing. This is also an integral part of the
profit planning process of the user or consumer. Formal profit planning involves the use
of budgets. The cost volume profit analysis provides an overview of the profit planning
process. This helps in evaluating the purpose and reasonable list of forecasts and
budget.
The profitable combination of variable cost, fixed-line, and sales volume can be found in
the album cost volume profit analysis. This can be reduced
There are different types of ways to improve the profit and to increase the total
contribution margin figure.
This is done by reducing the fixed cost and thereby increasing the volume. This is only
done by the trading of the variable and fixed cost with appropriate changes in volume.
Different contributions of factors are possible. The size of the unit contribution margin is
very important. Whenever there is a large greater unit contribution margin then there is
a large amount of company will be ready to spend and increase the unit sales. This
explains why the company with a unit contribution margin and also heavily.
Cost volume profit analysis only looks at the impact of operating profit and it’s all
because of varying levels of the volume. Cost-effective determine a breakeven point for
cost structure with different volumes. This is the one which helped the managers in
making the economic distance for short-term stop cost volume profit analysis helps to
determine the level where all relevant cost can be recovered.
Reference
1. What is Cost Volume Profit Analysis (CVP)? – Definition: Meaning: Example.
(n.d.). Retrieved from https://www.myaccountingcourse.com/accountingdictionary/cost-volume-profit-analysis
Respond 2:
A.
It is an analytical tool which is used for studying the cost volume profit relationships in
the manufacturing as well as selling process in the firm’s. it is a process which will be an
integral part of production manufacturing and planning of the products for the selling.
Along with the manufacturing and selling the marketing and other strategies will be
dependent on the cost volume profit analysis of the product. Relationship analysis
requires a volume of the product along the cost and the prize which is been used for the
raw materials as well as the selling price of the product along with the profits which are
again for the firms to the business. This will be helpful in formal planning and controlling
of the budget for the products and to avoid any kind of increase in the mortar reach for
the industries and for any kind of loans which has been taken. It has been always
important to know about the effects of the prophet cost volume analysis because this
will enable them to know about the what kind of minimum sales volume is being done
and how to avoid the loss (Caldwell et al, 2021). It will help us to know about the
changes in the prices of the goods and the cost of raw materials and labour which is
being included in the expenditure of the product manufacturing. And the kind of
production it is required. It will help them to raise the prophet was which have been
made by them along the dynamic management which requires a proper continuous plan
with the basics to be addressed at earlier. Enable the managers to take the propositions
which will help them to avoid any kind of inconvenience with respect to the expenditure
and the treasurer’s will be looking after the money which is going to be spent (csus.edu,
2021).
B.
Abc company will be manufacturing the electrical fans, the management wants to know
the profit cost volume analysis of the product. Total sales revenue of the company will
be $300,000, the variable cost will be $240,000 and the fixed cost will be $60,000. The
maximum capacity will be $14,000 units. The number of units sold will be
$300,000/$300 = 1000 units, variable cost per unit will be ($240,000/$1000 = $240),
contribution cost will be ($300-240= 60). Profit cost volume analysis will be fixed price/
contribution cost ($ 60,000/ $60 = 1000) (cliffsnotes.com, 2021).
C. Costing can be considered as an study costing which will be changing from time to
time that is the variable without any fixed cost will be so that it could be adaptable for
them to avoid any kind of loss. Variable costing will help us in knowing the decision
when the uncertainty in the cost of raw materials and other manufacturing procedure
takes place (pluginfile.php, 2020). This is the most accurate thing which is required
when people wants to look after benefiting side of the variable costing because it will
reduce the cost and help us to avoid any kind of loss with respect to production.
However there are analysis which has to be done by managers to work on the variable
cost as well because it will help them to avoid any kind of inconvenience during project
planning and execution. Variable costing is the best method for small scale industries
and the products which has less demand in the market (Drury, 2021).
D. Numerical example for the variable costing is when a company is producing the
phone cases worth from direct materials $150,000 and labour cost of $75,000 with
variable manufacturing overhead of $ 80,000, the total will be $305,000/ 100,000 hence
the variable cost will be $0.305 (harpercollege.edu, 2016).
References
Caldwell et al. (2012). Cost-Volume-Profit Relationships. Retrieved
from, https://mgmt027.files.wordpress.com/2015/01/mgmt-027-chapter-05slides_online.pdf
cliffsnotes.com. (2021). Cost-Volume-Profit Analysis. Retrieved
from, https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-ii/costvolume-profit-relationships/cost-volume-profit-analysis
csus.edu. (2021). COST-VOLUME-PROFIT RELATIONSHIPS. Retrieved
from, https://www.csus.edu/indiv/p/pforsichh/accountinginfo/2/documents/Ch06CVPAnal
ysisSTUDENTCOPYX2.pdf
Drury, C. (2021). Absorption costing and variable costing. Retrieved
from, https://link.springer.com/chapter/10.1007%2F978-1-4899-7222-4_7
harpercollege.edu. (2016). VARIABLE COSTING. Retrieved
from, https://www.harpercollege.edu/academicsupport/tutoring/subjects/pdf/Variable%20Costing%20ER.pdf
pluginfile.php. (2020). Absorption Costing and Marginal Costing. Retrieved
from, http://202.164.34.138/moodle/pluginfile.php/1881/mod_resource/content/0/Margin
al%20Costing%20%20CVP%20Analysis.pdf
Regards,
Vinay Kishan Guduru
Respond 3:
A. The profit-Cost-Volume analysis is used to determine the fixed costs, variable costs,
sales volume to determine the profit. This analysis is used to report the financial results
of any given business. By performing this analysis we can find out the breakeven point
of the company(Contributor, 2020). A breakeven point is a state where a company does
not see either profits or losses. This profit-Cost-Volume analysis is a powerful tool for
the managers by which they can assess accounting and make decisions. Before
understanding the Profit-Cost-Volume relationship we need to understand the
contribution margin. Using the contribution margin income statement we can find the
difference in fixed and variable costs(Carlson, n.d).
Let operating income be as O.I then,
O.I = Total Sales – Fixed costs – variable costs
The manager needs to understand the difference between a gross margin and a
contribution margin. Gross margin will bring a difference in sales and total costs of the
goods that are sold. While contribution margin is dependent on variable
costs(Managerial Accounting). Both margins are important for a manager to make
decisions.
The contribution margin ratio is a key to find out how close we are to profits by
calculating the total contribution amount to sales. For example, if the total contribution
margin is $70,000 and the total sales are $100,000 your contribution margin ratio is
70%. That means that for each and every dollar that is spent there is 70 cents of the
likelihood of profit. Using the given variables, managers use break-even analysis to
determine a point between sales where the company makes no profit and no loss. One
variable to understand this is operating income. If the operating income is 0 then we
have reached the break-even point. If operating income is positive then there is profit
and it is negative then the company sees a loss.
B. If I were an owner of an office supply company and I were to sell pens. Let’s assume
each pen is sold for $2. The fixed cost is $10,000 and the variable cost of each pen is
$1. Here the total cost is a variable cost of $1 plus the fixed costs of $10,000.
If my company sells 5,000 pens, then the total costs are $15,000.
The total revenue of the sales is $10,000. The revenue goes up when volume goes up.
The contribution margin is $5,000.
C. Variable costing which has been gaining exceptional importance in large industrial
companies focuses more on the internal reporting for better insight into the cost
relationship of product and the volume manufactured(Hasan, 2015). Variable costing
has the product costs directly related to the manufacturing costs without involving any
direct and indirect costs which helps analyze the internal costs in depth for better
planning. As per the Variable costing article in the International Scholar Journal of
Accounting and Finance, Variable costing meets effectively internal reporting
requirements whereas the absorption costing method meets external reporting
requirements. Both Variable costing and Absorption costing have their own way of
contributing to the financial analysis and applicability of the manufacturing business.
According to author Dyhdalewicz, the implementation of variable costing in the
management of the profitability of sales presents multiple ideas through which the
income statements can be built which in turn can be used as the tool for multidimensional measurements and perform analysis on the profitability of the sales like
what could be the minimum cost of the product at which it can be sold, what is the price
of the product at which the company can get zero profit, etc. The article also focuses on
the general assumptions that need to be observed in the trade companies during the
build of profitability reporting which follows the rules set by the variable costing
approach.
An article on standard variable costing in lean production provides an insight into the
relationship between variable costing the performance in lean production. This means
that the increase in the use of standard variable costing will increase the performance
but decrease the level of goal incongruent behavior in the trade business(Kristensen,
2020). This article provides proper evidence after proper examination of performance
effect and lean-congruent behaviors based on the usage of second-order structural
equation models.
D. Variable costing helps managers to understand the limit of production and prevents
from increasing production just for the sake of getting inflating profits. Variable costing
targets all variable costs in the inventory and all the fixed production costs which are
reported as period costs. For example, if a manager expects to get a bonus for reaching
a particular limit but if he/she is falling $1800 short then the manager tends to increase
the production in double the amount than that can be sold to increase the profit even
though they will have excess inventory for future months. This strategy can be caught
using Variable costing as all the fixed manufacturing overhead costs are expensed as
incurred.
References:
Carlson, R. (n.d.). What Is Cost-Volume-Profit Analysis and How Do Changes Affect
Profit? Retrieved from https://www.thebalancesmb.com/how-to-do-cost-volume-profitanalysis-an-introduction-393475
Contributor, C. (2020, October 15). Cost-Volume-Profit Relationship & Break Even
Analysis. Retrieved from https://smallbusiness.chron.com/costvolumeprofit-relationshipbreak-even-analysis-67266.html
Dyhdalewicz, A. (2015). The Implementation of Variable Costing in the Management of
Profitability of Sales in trade Companies. E-Finanse, 11(3), 116-127. doi:10.1515/fiqf2016-0123
Hasan, M. (2015, October 19). Variable Costing and its Applications in Manufacturing
Company. Retrieved
from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2675830
Kristensen, T.B. (2020, January 27). Enabling use of standard variable costing in lean
production. Retrieved from
https://www.tandfonline.com/doi/abs/10.1080/09537287.2020.1717662
Managerial Accounting. (n.d.). Retrieved from https://courses.lumenlearning.com/sacmanagacct/chapter/cost-volume-profit-analysis-in-planning/
Vijay Pulivarthi
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