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

Calculate the predetermined overhead rate, Bubba's Crawfish Processing Comp...

Bubba's Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours. For the current year, overhead is estimated at $1,150,000, and direct labor

Features of jit, What are the major features of JIT?

What are the major features of JIT?

Wages and salaries, Given the information that follows, prepare a cash budg...

Given the information that follows, prepare a cash budget for the XYZ Store for the first six months of 2010. All prices and costs remain constant. Sales are 90% for cre

Calculate the break-even in units under each option, o locate a store, but ...

o locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals: 1. paying

Derive a truth table for a combinational logic circuit, Derive a truth tabl...

Derive a truth table for a combinational logic circuit that is to decode a 4-bit BCD representing a number in the range 0-9 and generate an appropriate 7-bit output to illuminate t

Prepare a balance sheet for schubert products inc, Balance Sheet Preparatio...

Balance Sheet Preparation with a Missing Element The following data are available for Schubert Products Inc. as of December 31, 2012. Cash . . . . . . . . . . . . . . . . . . .

Calculate the cash flows for each alternative, A company is evaluating the ...

A company is evaluating the following lease or buy option. A four year lease with annual payments of $25,000 payable at the beginning of the year.The tax shield is available at

Depreciation, This is the amount charged due to the usage and passage of ti...

This is the amount charged due to the usage and passage of time. Fixed assets are utilized for earning revenue. Thus, a decrease in their value is considered to be the operational

Cost unit, explain various type of cost ccounting

explain various type of cost ccounting

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