Critical thinking about cvp, Cost Accounting

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:

1333_CVP.png


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:


2139_CVP1.png

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.

Posted Date: 7/21/2012 4:28:23 AM | Location : United States







Related Discussions:- Critical thinking about cvp, Assignment Help, Ask Question on Critical thinking about cvp, Get Answer, Expert's Help, Critical thinking about cvp Discussions

Write discussion on Critical thinking about cvp
Your posts are moderated
Related Questions
Cost Classifications and Estimation Cost classification may be defined like 'the arrangement of cost items in a logical sequence having concern to their nature and reason to b

Hello, I''m currently doing a research on a company and planning an Activity Based Costing system since the company is using Traditional Costing system to allocate the overhead to

Assume the same facts as in 1A above, except that the interest payment checks were placed on the shareholders' office on December 31, 2012. However, the shareholders are not in the

what is cost audit? types of cost audit explain

Allocation of Overhead Costs Allocation of overheads is the term utilized where the overhead cost item can be charged to a exact cost center without the requirement for any es

Apollo Company manufactures a single product that sells for $168 per unit and whose total variable costs are $126 per unit. The company's annual fixed costs are $630,000. (1) Use t

A firm uses capital and labor to produce a single output good. The production function is given by F(K, L) = K 2 L where K is the amount of capital and L is the amount of labor em

As a potential investor, what is the problem with different countries having different accounting standards? As the president of a multinational company, what is the problem with


Link between Financial and Cost Books The link among the two sets of books is achieved via operating a cost ledger control account and a financial ledger control account.  Cos