Critical thinking about cvp, Cost Accounting

Assignment Help:

The Critical Thinking about CVP is described below

CVP is more than just a mathematical tool/device to calculate values such as the break-even point. It can be used for the critical evaluations about the business viability.

For instance, a manager should be conscious of the "margin of safety."  The margin of protection is the degree to which the sales go beyond the break-even point. For Leyland, degree to which sales exceed is approximately

$2,000,000 (its break-even point) is the margin of the safety. This will give a manager some valuable information as they plan for predictable business cycles.

A manager should also recognize the scalability of the business. This refers to the ability to improve profits with rise in volume. Evaluate the income analysis for the Leaping Lemming Corporation and the Leaping Leopard Corporation:


Both the companies "broke even" in 20X1. Which company would you to a certain extent own? If you knew that each company was growing quickly and expected to double sales each coming year

(without any alteration in the structure of their cost), which company would you prefer? With the added information, you would expect the below obtained outcomes for 20X2:


This study reveals that the Leopard has a much more scalable business model. Its contribution margin is very high and once it clears the fixed cost hurdle, it will turn out to be very profitable. Lemming is fighting a never finishing battle; sales increases are met with considerable increases in the variable costs. Be conscious that the scalability can be a double-edged sword. Pull backs in volume can be shocking to companies like Leopard because the fixed cost load can be consuming. Whichever the condition, managers are required to be fully cognizant of the effects of the changes in scale on the bottom-line performance.

Related Discussions:- Critical thinking about cvp

Relationship between cost accounting and business enterprise, Relationship ...

Relationship between Cost Accounting and Business Enterprise Cost accounting, like will be mentioned later to adopts a cost center approach to accounting for costs. A cost cen

Determine the direct materials cost variance, Question P A RT A ...

Question P A RT A Borrico ltd manufacture a single product and they had currently introduced a system of budgeting and variance analysis. The subsequent information i

the practice of standard costing., Determine why  JIT, TQM and AMTs may no...

Determine why  JIT, TQM and AMTs may not always be entirely compatible with  the practice of standard costing.

process costing, how to calculate total costing in weighted average metho

how to calculate total costing in weighted average method

Marginal costing vs direct costing, MARGINAL COSTING Vs DIRECT COSTING ...

MARGINAL COSTING Vs DIRECT COSTING Direct costing is the method where only direct costs are measured while calculating the cost of the product. Indirect costs are met in opposi

Calculate the direct-material price and quantity variances, Quicksilver Com...

Quicksilver Compnay has set the follwoing standards for one unit of product: Direct material Quantity: 6.2 lbs per unit Price per lb: $11 per lb Direct Labor Quantity: 6 hrs

Choice of budget flexing basis, Choice of Budget Flexing Basis The mo...

Choice of Budget Flexing Basis The most suitable flexing basis must be considered where it assists in the comparison of alternative budget data at the planning stage and for

Period costs, Period Costs Some terms are difficult to define. In one s...

Period Costs Some terms are difficult to define. In one school of thought, period costs are the any costs that are not product costs. But, such a description is a stretch, beca

Expenditure for the base period and the current period, 1. The table below ...

1. The table below gives data for Southland where there are three consumption goods: bananas, coconuts and grapes. Goods Quantity in base period basket

Calculate the price of regular bonds, XYZ Inc. plans to raise $5,000,000 ex...

XYZ Inc. plans to raise $5,000,000 external financing through issuing bonds, and is considering two options: regular bonds and zero couple bonds.  The regular bonds will have coupo

Write Your Message!

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd