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

Principles of incremental revenue and relevant costs, Shortflower Ltd curre...

Shortflower Ltd currently publishes, prints and distributes a range of catalogues and instruction manuals. The management has now decided to discontinue printing and distribution a

Costs and revenues over a range of activity levels, 1. Single product or si...

1. Single product or single mix of products 2. Variable cost, fixed cost and selling price are constant 3. The level of production will equal the level of sales Example:

What is the total cost of the work in process, The Cutting Department of th...

The Cutting Department of the Rock Island Custom Cabinetry Corporation (a process costing production) had no work in process at the beginning of the period, 12,000 units were compl

Using the dupont formula for rate of return on investment, The vice preside...

The vice president of operations of six layer computer Inc. is evaluating the performance of two divisions organized as investments centers. Invested assets and condensed income st

Provision for bad and doubtful debts, A provision must be made in advance f...

A provision must be made in advance for those debts whose recovery is uncertain and to writing off bad debts. Each enterprise, depends on their past experience, make a provision fo

Calculate the equivalent annual cost, A plant is considering the replacemen...

A plant is considering the replacement of a piece of equipment in its materials handling system with a new piece. If the company's cost of capital is 10%. Should the present asset

Cost of labor, The number of workdays varies from month to month due to the...

The number of workdays varies from month to month due to the number of weekdays, holidays, days of vacation, and sick leave taken in the month. The number of units produced in a mo

Prepare a direct material purchases budget., 1) The Svelte Jeans Company pr...

1) The Svelte Jeans Company produces two different types of jeans. One is called the "Simple Life" and the other is called the "Fancy Life". The company sales budget estimates that

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