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:

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.


Related Discussions:- Critical thinking about cvp

Gain on the sale of the discontinued operation, NSC Ltd. has a 31 May fisca...

NSC Ltd. has a 31 May fiscal year-end. NSC disposed of its Information Systems Group (ISG) on 31 January 20X3. ISG had a net loss (after taxes) of $37,700,000 in 20X3, to the date

Break-even chart, Break-Even Chart This is a diagrammatic presentation...

Break-Even Chart This is a diagrammatic presentation of the relationship among costs, prices, expenses and the sales volume. A break-even chart expresses revenue and expens

Find interest and refunde, Gerona Company authorized the sale of $300,000 o...

Gerona Company authorized the sale of $300,000 of 10%, 10-year debentures on January 1, 2008. Interest is payable on January 1 and July 1. The entire issue was sold on April 1, 200

Cost bookkeeping, what are the accounting entries for interlocking and int...

what are the accounting entries for interlocking and integrated systems of cost accounting?

Job order costing, the folloeing job order cost sheets were purchased for t...

the folloeing job order cost sheets were purchased for three jobs that were in production during january job 97 job 98 job 99 material

Standard costing, behavioral aspect of standard costing

behavioral aspect of standard costing

Labor transactions, Labor Transactions (i) Wages Paid in cash (ii) ...

Labor Transactions (i) Wages Paid in cash (ii) Wages incurred like a) Direct labor or else b) Indirect labor  In the Financial Books  In

#title.Case Study., A retail dealer in garments is currently selling 24000 ...

A retail dealer in garments is currently selling 24000 shirts annually. He supplies the following details for the year ended 31st December,2007. Rs Selling Price per shirt

Tracking direct materials, Tracking Direct Materials Jack keeps full re...

Tracking Direct Materials Jack keeps full records of the material released to each job. When Donnie gathered up light bulbs, tape, breakers, wire, and wire nuts on the morning

Write Your Message!

Captcha
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