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

Variance analysis and standard costing, Variance Analysis and Standard Cost...

Variance Analysis and Standard Costing Standard costing is defined with CIMA like a technique that uses standards for revenues and costs for the purpose of control via varianc

General ledger, Jp Rhodes started a bowling club called " bowl them over". ...

Jp Rhodes started a bowling club called " bowl them over". The following transactions took place 4 March 2012. 1. Bowling LTD transferred R20 000 bank account of the club as an in

Marginal cost, contribution per unit 8 fixed cost=800.find B.E.P?

contribution per unit 8 fixed cost=800.find B.E.P?

Development and research cost budget, Development and Research Cost Budget ...

Development and Research Cost Budget These are costs that are discretional in nature such as they are determined on need basis via the managers concerned. Research cost is the

Calculate the consumption ratios for each product, The activity driver for ...

The activity driver for the shipping activity is the number of orders shipped. Product A uses 20 orders and Product B uses 60 orders. Calculate the consumption ratios for each prod

Disadvantages of using standard costs, Purposes of standard cost accounting...

Purposes of standard cost accounting connection - suppose you were a management consultant and the client asked you the advantages and disadvantages of using standard costs and cos

Calculate the tax base of the interest received, Prepare answers to each of...

Prepare answers to each of the following questions.  Assume a tax rate of 30%. (i) Harry Ltd has a balance of prepaid rent in the balance sheet amounting to $100 000 as at 30 Ju

Change in useful life for deperciation, A machine originally had an estimat...

A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At tha

Production needs in inventory for component a, Kenner company produces two ...

Kenner company produces two products: SR200 and TX500. Budged sales for four months are as follows; SR200 TX500 May 8,000 20,000 June 13,000 32,000 July 11,000 39,000 August 18,000

Concepts of balanced scorecard and performance measurement, A college curre...

A college currently measures its performance by comparing the actual costs against its budgeted costs for the year.Now that the college is facing increased competition from Various

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