Reference no: EM133545351

Case Study: Cost-volume-profit (CVP) analysis allows managers to see how changes in costs and volume will affect the company's operating expenses and net income (for-profit) or net assets (non-profit). This form of analysis compares different relationships, such as the cost of operating and producing goods and services, the volume of goods and services sold, and the profits generated from the sale of those goods and services. Cost-volume-profit (CVP) analysis helps managers make rational decisions such as what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to maintain. Its primary purpose is to estimate how profits are affected by the following five factors: selling prices, sales volume, unit variable costs, and total fixed costs. The CVP analysis is also extremely helpful in determining the contribution margin (CM), which is the per-unit revenue from the sale of goods and services minus the per-unit variable costs (VC) associated with producing the goods or delivering the services, with the product being the amount remaining to cover the fixed costs (FC) and ultimately flows into the profits.

Directions:

• Oslow has never utilized CVP methodologies before. You are the new CFO for Oslow Company. How would you convince Mr. Adrian and other executive-level staff that CVP analysis would benefit Oslow Company?
• In order to formulate your recommendation, you may want to carefully consider the problem, the three (3) CVP assumptions, collect relevant data and information, critically evaluate the alternatives, and document your recommendations using sound arguments that are well supported, properly vetted, and logically presented.